Cut potatoes into 1/2- to 3/4-inch cubes and put them into a medium saucepan. (Leave skins on.) Add enough water to cover the tops of the potato cubes. Cover and boil about 15 minutes, or until tender but still firm.
While potatoes are cooking:
Cook bacon until crisp, remove from pan and set aside, reserving bacon drippings.
Saute the onion in the reserved bacon drippings.
Turn the heat on the sauteed red onions down to medium low, and add vinegar, sugar, water and celery seed. Heat to a simmer and pour over hot potatoes. Make sure liquid and potatoes and both very hot when mixed together. Add cooked bacon pieces. Stir to combine.
Salt and pepper to taste, and then put into 2 1/2 qt. casserole dish.
Bake uncovered for 30 minutes at 325°.
German Potato Salad is always better the second day! Prepare it ahead of time and simply reheat (or serve cold) when you're ready to serve it.
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