The Basics: Building Savings & Loans
Building societies (Bausparkassen) are credit institutions that are authorised on the basis of their licence in accordance with the Banking Act (BWG – Bankwesengesetz) to take deposits from building savings customers (“building savings deposits”) and to provide the building savings customers with loans (building savings loans) from the collected amounts for housing-related measures and measures in relation to education and care. Building savings business may only be conducted by building society.
Building savings conditions
Every building society offers different types of savings contracts. Of course the general conditions for building savings contain very specific provisions about the respective tariffs, from with any individual deviation is only possible on an extremely restricted basis (see Article 7 of the Building Society Act (BspG – Bausparkassengesetz)). The building savings contract usually specifies a defined savings period, a minimum contractual term as well as the necessary minimum balance, which must be saved in order to be allowed to apply for a building savings loans. In addition repayment and regularly savings contributions are also determined.
Please take the following tips into consideration when concluding a building savings contract:
- When comparing interest rates, do not only check the initial fixed interest rate, but also inform yourself in detail about the variable interest rate that is offered. Because: the high fixed introductory interest rate generally applies for one year from conclusion of the contract. Advertising often tends to only display the introductory interest rate and the government premium.
- High interest sometimes on applies to deposits of up to a maximum of EUR 1,200 per annum. Deposits (“excess payments”) that exceed that amount, may only receive interest at a lower interest rate.
- Consider carefully whether you are able to afford the monthly savings instalment. If the arranged savings goal is not achieved, then management fees frequently become due. If you are in any doubt, opt for a lower savings goal.
- Care should be exercised if considering surrendering the contract early, as this may also incur a management fee. Interest on the saved amount is often paid in arrears, and the government premium received required to be repaid.
- Request scenario calculations from the building society, that are based on the upper and lower offered interest thresholds.
- The interest rate advantage can exploited optimally by paying in at the start of the year or start of the month. The money is in the account for longer, and therefore accumulates more credit balance interest.
- If you decide to only conclude or pay up a building savings contract in December, then while you will secure the buildings savings premium for this year, but you will hardly receive any interest, because the money is not actively accruing interest for very long.
Source: Arbeiterkammer website
General terms and conditions
Please note that the building society is required to provide every building savings customer with a copy of the general terms and conditions. They must include the following information (Article 4 Building Society Act):
- The amount and maturity of the benefits for building savings customers, as well as the legal consequences, that occur in the event of delay,
- The applicable interest rates for building savings deposits and the building savings loans,
- Information about the sequence of the assigning of the sums under contract including the minimum waiting period as well as the conditions that apply for paying out the contractual amount; the minimum waiting period may not be less than 18 months,
- Security of the loans and guarantees,
- The conditions, under which a building savings contract may be shared, or pooled with another building savings contract, or the contractual sum may be increased or reduced,
- The conditions, under which claims arising from the building savings contract may be assigned or pledged, or a building savings contract may be redeemed as well as the legal consequences that arise from the redemption of the building savings contract,
- The conclusion of life assurance policies to covering the eventuality of death, the amount of the sum insured, as well as the possibility to offset existing life assurance policies, where the building savings customer is required to conclude such a policy,
- and the charges that the buildings savings customer shall be charged.
Building savings models
There are different models depending on the building society (in terms of differences relating to the savings and loan terms and applicable interest rates). In principle building savings contracts are designed as follows:
- Savings phase
- Regular monthly or yearly payment, or one-off amount
- Term or at least six years
- Generally flexible interest rate
- Government premium (defined annually by the Federal Ministry of Finance)
- Once the contractually arranged duration has expired, the building savings contract becomes eligible for distribution, with the balance being available to be paid out, or a loan taken out.
- Loan phase
Key figures on building savings as a whole (e.g. the number of building savings contracts, contract volume) can be found on the Arbeitsforum österreichischer Bausparkassen’s website.
What types of loan financing are possible?
- Building savings loans
- Bridging loans: For servicing financing even in the event that the building savings contract is not yet eligible for distribution
- Other loans for housing-related measures and as well as education and care measures
- Monetary loans on the account of third parties, if they are intended for the financing of housing-related measures
- Monetary loans to companies in which the building society has holdings
Deposit protection on credit balances of building savings
Building societies hold a licence in accordance with the Banking Act. A requirement for the granting of a licence is that the building society belongs to a deposit guarantee scheme. Building savings deposits are considered as deposits subject to guarantee obligations (eligible deposits). Please also consult our information on deposit protection.