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There are a few steps you can take to fix the display of German umlauts in VS Code:

1. Change the encoding: Go to the bottom right corner of the editor window and click on the encoding label (e.g. UTF-8). Select a different encoding, such as ISO-8859-1 or Windows-1252, and see if that fixes the issue.

2. Change the font: Sometimes the issue is caused by the font used in the editor. Try changing the font by going to File > Preferences > Settings, scrolling down to the "Editor: Font Family" setting, and entering a different font.

3. Install an extension: There are several extensions available in the VS Code marketplace that can help with the display of special characters, such as "Rainbow Brackets" or "Indent Rainbow." Try installing and experimenting with some of these extensions.

4. Check your language settings: If you're using VS Code in a non-German language, it's possible that the encoding or font settings are not optimized for displaying German umlauts. Try changing your language settings to German in File > Preferences > Settings > User Settings > "locale" or by adding "locale": "de" to your workspace settings.

5. Check your file's encoding: If you're working with a file that contains German umlauts, check the file encoding to make sure it matches the encoding settings in VS Code. You can do this by opening the file and going to File > Reopen with Encoding, then selecting the appropriate encoding.