What Is a Freistellungsauftrag? How to Keep €1,000 of Investment Income Tax-Free

Sarah moved from Dublin to Frankfurt two years ago. She keeps €20,000 in a Tagesgeldkonto that pays 2.5% interest, so she expects about €500 in interest this year. When the first quarterly payment arrives, it is smaller than she calculated. Her bank has quietly withheld 26.375% in tax.

Over a full year, that is roughly €132 gone, on interest that could have been completely tax-free. The reason is one missing form: the Freistellungsauftrag.

Most people in Germany are entitled to €1,000 of investment income per year without paying any tax on it. But banks only apply that allowance automatically if you tell them to. This guide explains what a Freistellungsauftrag is, how it works with your savings and ETFs, and how to set it up correctly in a few minutes.

1. What Is a Freistellungsauftrag?

A Freistellungsauftrag (exemption order) is an instruction you give your German bank or broker. It tells them: “Do not withhold tax on my investment income up to this amount.”

It is linked to the Sparerpauschbetrag, the annual tax-free allowance for capital income. Since 2023, the allowance is:

• €1,000 per person per year
• €2,000 for married couples and registered partners who are assessed jointly

Capital income includes interest from a Tagesgeldkonto or Festgeld, dividends from shares, distributions from ETFs, gains when you sell investments, and the so-called Vorabpauschale on accumulating funds.

Without a Freistellungsauftrag, your bank treats every euro of this income as taxable and sends the tax straight to the tax office. With one, the first €1,000 stays in your account untouched.

2. How Much Tax Do You Pay Without One?

Investment income in Germany is taxed with a flat withholding tax called Abgeltungsteuer. It is deducted directly by your bank, so most people never see a bill.

In practice, that means:

• €500 of interest without a Freistellungsauftrag → about €131.88 withheld
• €500 of interest with a Freistellungsauftrag → €0 withheld
• €1,400 of income with a full €1,000 order → tax only on €400, about €105.50

If you are still building your savings, every euro counts. A good emergency fund in Germany usually sits in exactly the kind of account where this allowance matters most.

3. How to Set Up a Freistellungsauftrag

Setting one up is free and usually takes less than five minutes. Most online banks and brokers offer it directly in their app or online banking.

1. Find your Steuer-ID. You need your 11-digit tax identification number. It appears on your annual income tax certificate from your employer, on your tax assessment, and often on your German payslip.
2. Log in to your bank or broker. Look for “Freistellungsauftrag” in the settings, tax or profile section.
3. Choose the amount. Enter how much of your €1,000 (or €2,000 as a couple) this bank should use.
4. Confirm and save. The order applies immediately to future payouts in the current year.
5. Repeat for each bank where you earn interest, dividends or gains, making sure the total stays within your limit.

The order stays valid until you change or cancel it, so you do not need to renew it every year.

4. How to Split Your Allowance Across Several Banks

You can divide your allowance between as many banks and brokers as you like. The only rule: the total must not exceed €1,000 per person (or €2,000 for a joint order).

Banks do not see each other’s orders, but the tax office does. If your combined orders exceed the limit, you will have to repay the tax, and repeated over-allocation can cause problems.

A sensible approach is to estimate your expected income per bank:

You can change the split at any time during the year, usually up to the last banking day. If you move your savings to a better rate or open a new account, simply adjust the amounts. Even interest on a rental deposit account counts as your capital income, which matters when you get your rental deposit back.

One detail many people miss: closing an account does not automatically free up its allowance for the same year. Check with the bank before you move everything.

5. How It Works With ETFs and the Vorabpauschale

If you invest through an ETF savings plan, your Freistellungsauftrag also covers ETF income. Two special rules matter here.

Teilfreistellung (partial exemption)

For equity funds, such as most world or index ETFs, 30% of the income is tax-free by law. Only 70% counts toward your allowance. So a €1,000 gain on an equity ETF uses just €700 of your Sparerpauschbetrag.

Vorabpauschale

Accumulating ETFs reinvest their income instead of paying it out. To make sure some tax is still collected, Germany charges an annual advance lump sum called the Vorabpauschale. It is based on the Basiszins, which is 3.20% for 2026.

Example: an equity ETF worth €10,000 at the start of 2026 that rises during the year.

• Base return: €10,000 × 3.20% × 0.7 = €224
• After the 30% partial exemption: €156.80 taxable
• Tax if no allowance is left: about €41.36

The Vorabpauschale for 2026 is deemed received on 4 January 2027, so it uses your 2027 allowance. That is why it makes sense to leave part of your Freistellungsauftrag at the broker where you hold accumulating ETFs. If you are still deciding between products, read our guide to ETFs and index funds as a starting point, ETF vs stocks and the ETF expense ratio.

6. Freistellungsauftrag for Couples, Children and Low Earners

Married couples

Married couples and registered partners can set up a joint Freistellungsauftrag of up to €2,000. If one partner uses less than their share, the other can use the rest. A joint order also allows the bank to offset losses between both partners’ accounts at that bank. If you are still deciding how to organise money as a couple, see joint vs separate bank accounts.

Children

Every child has their own €1,000 allowance. If you save for a child in an account in the child’s name, set up a Freistellungsauftrag for that account, signed by the parents.

Students, retirees and low earners

If your total income is below the basic tax-free allowance, you may be able to apply for a Nichtveranlagungsbescheinigung at your tax office. With this certificate, your bank withholds no tax on capital income at all, even above €1,000.

7. What If You Forgot to Set One Up?

Do not worry. The money is not lost.

• Same year: If you set up the order later in the year, many banks automatically refund tax already withheld in that year.
• Previous years: You cannot create an order retroactively, but you can reclaim the tax in your income tax return using Anlage KAP and the annual tax certificate (Jahressteuerbescheinigung) from your bank.

If you already file a tax return to claim tax deductions as an employee, adding Anlage KAP takes only a few extra minutes.

A tax return can also help through the Günstigerprüfung: if your personal income tax rate is below 25%, the tax office can tax your capital income at your lower personal rate instead.

A Real-Life Example

Tomás is 31, originally from Valencia, and works as a software tester in Hamburg. He has three accounts:

• A Tagesgeldkonto with €18,000 at 2.5% interest
• An ETF savings plan of €300 per month in an accumulating world ETF, now worth about €12,000
• His regular current account

When he first arrived, he never set up a Freistellungsauftrag. His savings bank withheld about €119 on €450 of interest in his first full year.

This year he logged in to both banks and split his allowance: €600 at the savings bank and €400 at his broker, to cover the Vorabpauschale and any sales. Total: exactly €1,000.

He also claimed the tax from the previous year back through Anlage KAP in his tax return. Combined, a few minutes of admin will save him well over €100 a year. That money now flows straight into his savings plan, where compound interest does the rest.

8. Common Mistakes With the Freistellungsauftrag

• Not setting one up at all. This is the most common and most expensive mistake, especially for people new to Germany.
• Exceeding €1,000 in total. Giving each bank €1,000 “to be safe” leads to back payments.
• Leaving the allowance at an old bank. If an account you closed still holds €800 of your allowance, your new bank may only have €200.
• Forgetting the Vorabpauschale. Allocating everything to your savings account can leave nothing for your ETF broker in January.
• Assuming foreign brokers handle it. Brokers without a German tax setup do not withhold German tax and do not accept a Freistellungsauftrag. You then declare the income yourself in your tax return.
• Never reviewing it. When interest rates, your savings or your investments change, your split should change too. It belongs on the same yearly checklist as the rest of your tax planning.

9. Frequently Asked Questions

How much is the Freistellungsauftrag in 2026?

The Sparerpauschbetrag is €1,000 per person and €2,000 for jointly assessed married couples and registered partners.

Do I need a Freistellungsauftrag if I only have a small amount of savings?

Yes, it is still worth it. Even €50 of interest is otherwise taxed at about 26.4%. Setting up the order costs nothing.

Can I have a Freistellungsauftrag at more than one bank?

Yes. You can split your allowance between several banks and brokers, as long as the total does not exceed your limit.

Does the Freistellungsauftrag expire?

No. It remains valid until you change or cancel it. However, it is worth checking it once a year.

Do expats in Germany get the Sparerpauschbetrag?

If you are tax resident in Germany and have a Steuer-ID, you are entitled to the same allowance as everyone else. If you plan to move away, read our guide on leaving Germany and your finances.

Final Thoughts

The Freistellungsauftrag is one of the easiest money wins in Germany. It does not require a tax advisor, it does not change how you save or invest, and it can protect up to €1,000 of income from tax every single year.

Take five minutes this week: find your Steuer-ID, log in to each bank where you earn interest or hold investments, and split your allowance sensibly. Then let the money you save work for you, as part of a broader plan for saving money in Germany and saving for retirement.

This article is for general information only and is not tax, legal or financial advice. Tax rules can change; for your personal situation, consult a tax advisor or Lohnsteuerhilfeverein.

Continue Building Your Financial Foundation

Keeping more of your investment income tax-free is one small step toward a stronger financial foundation. If you want a practical introduction to budgeting, saving, managing debt and building stronger money habits, explore Personal Finance Made Simple for Beginners.

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