Money market ETF or instant-access savings account: rates, safety and tax compared

Basics11 min read · updated 24 October 2026 · 17 sources

A money market ETF pays almost exactly the rate at which banks in the euro area lend each other money overnight. You get it without teaser offers and without switching accounts, but also without deposit insurance. An instant-access savings account (Tagesgeld), by contrast, is protected by law up to €100,000, but often pays a good rate only to new customers. Here we compare the two at the interest rate level of October 2026: how the funds track the €STR, how safe segregated fund assets and deposits are, why money market ETFs get no partial exemption (Teilfreistellung) and what is left after taxes and costs.

What a money market ETF is

Many euro money market ETFs track the €STR, the rate for unsecured overnight loans between banks, which the ECB publishes every business day (ECB, €STR 2026). Every day, the index adds the interest to the previous day's value, so it rises slowly and with almost no fluctuation. Two designs are common:

• Synthetic, via a swap: the fund holds a basket of securities and swaps its return with a bank for the return of the €STR index (see swap ETF and index replication). For UCITS funds, the risk of the bank defaulting is capped at 10% of the fund's assets per credit institution (UCITS Directive 2009).
• Physical: the fund invests the money itself, in short-dated money market instruments, bank deposits and reverse repurchase agreements. If it is authorised as a money market fund under the EU regulation, strict rules apply: derivatives only for hedging; for short-term funds, a weighted average maturity of at most 60 days and a weighted average life of at most 120 days; and minimum shares of assets maturing daily or weekly (Money Market Funds Regulation 2017).

The regulation applies to funds that invest in short-term assets and aim for a return in line with money market rates. Our assessment: swap ETFs that exchange an arbitrary basket of securities for the €STR generally do not fall under it. They are colloquially called money market ETFs, but legally they are ordinary UCITS. Which type you are buying is stated in the key information document and the prospectus. Ongoing charges are low (0.10% in the example below); what is actually lost is shown by the tracking difference against the €STR.

Interest rates in October 2026

The €STR follows the ECB's deposit facility rate, at which banks park money overnight with the central bank. After eight cuts from 4.00% to 2.00% up to June 2025, the ECB raised the rate twice in 2026: to 2.25% on 17 June and to 2.50% on 16 September (ECB, key interest rates 2026). The €STR for 23 October 2026 was 2.442%, just under 6 basis points below the deposit rate (ECB, €STR 2026). The next monetary policy meeting is on 28 and 29 October 2026 (ECB, meeting calendar 2026). All figures here are as of 26 October.

Banks pass these rates on only in part. On average across all overnight deposits of households in the euro area (which also include current accounts), they paid 0.29% in August 2026, and 2.13% on deposits with an agreed maturity of up to one year (ECB, MFI interest rate statistics 2026). Good instant-access offers pay well above the average, but often only for a few months.

Instant-access savings: new-customer rates, existing customers and deposit insurance

An instant-access savings account is a bank deposit that is available daily and pays a variable rate. Many banks advertise a teaser rate for new customers that is guaranteed for a few months; after that, the rate for existing customers applies, which the bank can change at any time. If you want to keep earning the higher rates, you have to switch regularly, with account opening, identity verification and an exemption order (Freistellungsauftrag, which applies your tax-free allowance) at each new bank.

In return, instant-access savings are protected by deposit insurance: if a bank in Germany fails, balances of up to €100,000 per depositor and bank are protected by law, and certain credits, such as the proceeds from selling an owner-occupied home or a severance payment, are even covered up to €500,000 for six months (EinSiG § 8 2015). For banks in other EU countries, for example via deposit platforms, the scheme of their home country applies; the EU directive on deposit guarantee schemes prescribes the same €100,000 everywhere. The EU amended the rules in March 2026: temporary cover for high balances must in future be at least €500,000, and up to €2.5 million for property transactions; member states have until 11 May 2028 to implement this, and the €100,000 limit remains (Directive (EU) 2026/804 2026).

Money market ETF: segregated fund assets instead of deposit insurance

An ETF is not a deposit. There is no deposit insurance for it. But it does not need it in the same sense: the fund's assets are segregated fund assets (Sondervermögen), held separately from the assets of the fund management company, and do not become part of the insolvency estate if the company goes bust (KAGB § 92 2013); for Irish and Luxembourg ETFs, comparable rules apply under the UCITS Directive, with an independent depositary. The risk therefore lies not with the fund company but with what is inside the fund:

• Swap ETF: the counterparty risk of the swap bank (limited and usually collateralised) and the quality of the securities basket.
• Physical fund: the default risk of the banks where it deposits money and of the issuers of the money market instruments; widely diversified and very short-dated, but not zero.
• Liquidity in crises: after the collapse of Lehman Brothers in September 2008, there was a run on US money market funds (Schmidt et al. 2016). The European regulation requires money market funds to hold minimum shares of assets that mature daily or weekly.

For very large amounts, a money market ETF can therefore even be the more cautious choice: it spreads the money across many debtors, whereas instant-access savings above €100,000 per bank are unprotected. For small amounts, instant-access savings with deposit insurance are hard to beat, as long as the rate is right.

Taxes: no partial exemption, almost everything via the Vorabpauschale

Interest on instant-access savings is investment income and is taxed in the year it is credited at 25% flat-rate withholding tax (Abgeltungsteuer) plus solidarity surcharge, once the saver's allowance (Sparer-Pauschbetrag) of €1,000 (€2,000 for joint assessment) has been used up (EStG 2009). For tax purposes, money market ETFs are investment funds, but they are neither equity, mixed nor real estate funds: they get no partial exemption (InvStG 2016). Every euro of income is taxable, just as with instant-access savings.

For accumulating money market ETFs, there is also the Vorabpauschale (advance lump-sum taxation): value at the start of the year × base rate × 0.7, capped at the increase in value during the year. For 2026 the base rate is 3.20% (BMF 2026), so the base return is 2.24% of the value. That is almost as much as a money market ETF earns at a return of around 2.4%. The Vorabpauschale therefore captures almost the entire income, and the tax falls due at the start of 2027. The deferral advantage that accumulating equity ETFs enjoy (see accumulating or distributing) barely exists here. The Federal Ministry of Finance publishes the base rate for 2027 in January 2027.

Worked example: €50,000 for one year

Illustrative figures: instant-access savings at 2.75% for four months as a new customer, then 1.25%. A money market ETF on the €STR, with the rate staying at 2.442% throughout the year and a TER of 0.10%. Base rate as in 2026, saver's allowance already used up by other income, no church tax.

In the example, the money market ETF comes out ahead because the new-customer rate only applies for four months. If a bank pays 2.75% for twelve months, the savings account earns €1,375 before tax and comes out better. With the full allowance, the savings interest remains tax-free, whereas with the ETF the Vorabpauschale exceeds the allowance by €120. So the comparison hinges on three things: how long a promotional rate lasts, how the €STR develops and whether your allowance is still unused. Not investment or tax advice.

Liquidity and trading hours

• Instant-access savings: available at any time; a transfer to your current account takes anything from minutes to one bank business day, depending on the bank.
• Money market ETF on the exchange: on Xetra, main trading runs from 09:00 to 17:30; since 1 December 2025, retail investors can trade there from 08:00 to 22:00 (Deutsche Börse, Xetra Retail Service 2025; Deutsche Börse, trading hours 2026). After settlement, the proceeds reach your settlement account two business days later (T+2); on 11 October 2027 the EU switches to T+1 (ESMA, T+1 2026).
• Costs per order: with money market ETFs the spread is small, but a fixed order fee eats a noticeable part of the interest on small amounts and with frequent switching. A savings plan with no fee helps when building up a position.
• Rate changes: both follow the key interest rate down as well as up. The ETF does so immediately, the savings account at the bank's discretion. If you want to lock in a rate, you need a fixed-term deposit or short-dated bonds.

For advanced readers: index calculation, Act/360 and negative rates

Because the money market uses Act/360 and compounds daily, an €STR of 2.442% yields 2.4759% a year on a simple basis and 2.5067% with compounding, i.e. more than the rate itself. How a bank calculates interest on instant-access savings and how often it credits it is set out in its terms and conditions; when comparing, what counts is the effective annual rate. The tracking difference of a swap ETF roughly equals the TER plus swap costs; for physical funds, there are also differences between the yields of the instruments held and the €STR, which can be positive or negative.

Between 18 September 2019 and 27 July 2022, the deposit rate stood at −0.50% (ECB, key interest rates 2026), with the €STR slightly below it. During that time, a money market ETF lost this negative rate plus costs every year. For backtests, this means that the money market is not automatically capital preservation, and in euros a long-term “risk-free rate” of zero is not a harmless assumption (see Sharpe ratio and real return).

What research shows

Drechsler et al. (2017) explain with market power why instant-access savings often pay less than the money market: when the policy rate rises, banks widen the gap between the market rate and the deposit rate, and deposits flow out, more strongly where few banks compete. From this perspective, new-customer rates are a form of price discrimination: those who switch get more, those who stay help pay for the offer. The ECB data for August 2026 fit this picture: 0.29% on overnight deposits with a deposit rate of 2.25% (ECB, MFI interest rate statistics 2026; ECB, key interest rates 2026).

Money market funds are safe, but not risk-free. Schmidt et al. (2016) analysed the daily flows of US money market funds in September 2008 and found a pattern like a bank run: investors reacted to how they expected others to behave. The 2017 EU regulation requires minimum shares of assets maturing daily and weekly, stress tests and valuation rules (Money Market Funds Regulation 2017). For retail investors in euro money market ETFs the risk is small, but it shows why deposit insurance and segregated fund assets are different kinds of protection.

Limitations and common mistakes

• Extrapolating a teaser rate: a new-customer rate for four months is not an annual rate. Calculate with the rate that applies after the promotion.
• Mistaking a money market ETF for a deposit: it is a security without deposit insurance; its protection comes from the segregated fund assets and from diversification.
• Expecting a partial exemption: money market ETFs are not equity funds, so there is no tax-free 30%.
• Forgetting the Vorabpauschale: with a high base rate, almost the entire income is taxed every year; your settlement account should hold enough cash in January for the bank to pay the tax.
• More than €100,000 at one bank: anything above that is not protected by law if the bank fails. Split the amount or invest more broadly.
• Underestimating costs: an order fee of €5 on €1,000 is 0.5%, a fifth of the annual interest.

How Portfolio Lab calculates

In Portfolio Lab, the money market is a separate asset class, “Money market euro”: from 2007 an ETF on the €STR, before that the overnight rates €STR, EONIA and the Frankfurt overnight money rate, with ongoing charges of 0.10% (see Asset classes). With the tax option in the Backtest, the app treats money market and bond funds as other funds without partial exemption and calculates the Vorabpauschale using the official base rate for each year, the saver's allowance and loss offsetting. The risk-free rate for the Sharpe ratio and for leverage costs is the euro overnight rate of the respective period. The app does not model savings accounts with promotional rates. Details are in the tax methodology.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.