Get rich through interest – this ingenious strategy works

The second interest income: Interest can also be used to generate additional income that defies inflation. We have put together an ingenious portfolio with monthly returns for you.

The bad news first: You cannot increase your money with interest from safe federal bonds – in fact, you cannot even maintain the value of the money. A ten-year federal bond currently yields around 2.25 percent. After deducting 25 percent withholding tax and 5.5 percent solidarity surcharge, a saver is left with around 1.66 percent net.

For comparison: The average expected inflation rate for 2024 in Germany is 2.3 percent, and is expected to fall to 1.8 percent in 2024. This means that triple-A federal bonds will make you poor in the long run.

Börse ONLINE has therefore selected five securities that offer returns of just under four to 7.5 percent with adequate security and good diversification, and has put together a portfolio from them for an additional annual income.

Brilliant interest deposit: How it works

The basis is a 4.25 percent Fraport bond. At a price of 104 percent, it offers “only” a return of 3.7 percent, but it does offer good security: Fraport is systemically important. The majority of Fraport shares are owned by the public sector. In the event of an impending bankruptcy, the probability is therefore high that Fraport would also be supported by the state – similar to Lufthansa in Corona times. In our portfolio, the Fraport bond therefore receives the highest weighting at around 30 percent.

The second largest share is taken by the Bertelsmann profit participation certificate. Profit participation certificates are somewhat exotic on the financial market. On the one hand, they offer fixed, above-average distributions – but only if the issuing company achieves a sufficient annual profit. In the event of a loss, the payment can be temporarily restricted or even cancelled. The Bertelsmann profit participation certificate pays 15 percent on the basic amount of each certificate, i.e. 15 euros for every 100 euros. Since the stock market price is currently around 270 percent, investors have to shell out 270 euros for 100 euros of nominal value. This still results in an impressive return of 5.5 percent. And the special thing: The Bertelsmann profit participation certificates have a perpetual term, which means that they can neither be terminated nor repaid early by the issuer. We selected the Bertelsmann profit participation certificate and weighted it at around 25 percent because the company has always paid the 15 percent dividend in full since its issue in 2001, even during the financial crisis.

The next exciting security is a subordinated bond from Südzucker, which takes up around 15 percent of the portfolio. Subordinated bonds usually have a slightly higher risk than bonds. In the event of insolvency, all other creditors are satisfied before the subordinated bonds. But the rating agencies Moody's and Standard & Poor's unanimously upgraded the company's creditworthiness at the beginning of June, citing the stable financial figures as the reason. The security pays a fixed base interest rate of 3.1 percent. In addition, there is a variable remuneration in the amount of the three-month interbank rate Euribor, which was 3.72 percent when the bond was last adjusted and is currently quoted at 3.55 percent. Overall, investors receive a nominal interest rate of an impressive 6.82 percent, which is paid out and adjusted quarterly.

Earn additional income with interest – this is how it works

When BÖRSE ONLINE first reported on the Telecom Italia bond When he wrote, it was still speculation – now it's a fact: the financial investor KKR is buying the landline division for 22 billion dollars. With the money, TI will quickly become debt-free and will concentrate on the services business and the mobile phone division. The bond price has risen due to the improved credit rating, but the yield of 4.5 percent is still impressive.

The Aberdeen Frontier Markets Bond Fund (WKN: A1W5Y8) invests in interest-bearing securities from countries that are classified by the World Bank as low-income countries. What these countries have in common is that they are less advanced in their economic development than already established emerging countries such as India. However, they certainly have a chance of moving up into the emerging markets asset class in the next few years. The portfolio contains a total of 85 interest-bearing securities issued in Kenya, Pakistan, Nigeria, Ghana, Egypt, the Dominican Republic and El Salvador. The special thing about the fund is that it pays out monthly, since the beginning of the year around 0.04 to 0.06 dollars per share. This corresponds to a return of 7.5 percent. Over the year, the price has also increased by 15 percent.

By the way: We deliberately chose long-term bonds for our bond portfolio. If interest rates fall, as most economists expect, this will also lead to rising prices for the selected Euro bonds – assuming good creditworthiness.

And this is the result of our bond selection: With a Solidarity investment of around 100,000 euros, the portfolio generates additional interest income of 5,523 euros before taxes, of which 4,066 euros net remain after 25 percent withholding tax and 5.5 percent surcharge, not including possible price gains. In the calculation, we assumed that the three-month interbank rate Euribor, which is currently quoted at 3.55 percent, will average 2.9 percent over the next twelve months due to the expected interest rate cuts by the European Central Bank (ECB).

We also assumed that the Aberdeen Frontier Markets Bond generated an average distribution of 0.05 cents per share, similar to the previous twelve months. The income is spread over the year, with interest being paid out 19 times in total in twelve months. The interest income can either be consumed annually or used, for example, to start retiring earlier. If the same bonds were reinvested, after ten years, including interest and compound interest at the current yield level, the total after tax would be almost 51,000 euros. That's not as much as can be earned with the shares presented in this cover story, but it's enough to retire a year earlier. That's what financial freedom looks like.

By the way: This article first appeared in the new print edition of BÖRSE ONLINE. You can find it here, as well as the full article.

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