Battle for released billions from state bond erupts in full force

Trade Republic offers 3.75% gross on cash deposits

Today, the Belgian savings market is only about one thing. How to attract savings that will be released on 4 September when the one-year state note expires. Every bank is in full swing with its marketing campaign as time is running out. And while higher interest rates are indeed being offered on several investment propositions, the remuneration remains underwhelming. Here's why.

The battle for the billions

The Belgian state note that managed to raise as much as EUR 22 billion and convince 542,670 Belgian savers in September 2023 expires on 4 September, and this is causing quite a stir in the savings market. Financial institutions are rolling over each other with the introduction of new, improved and optically attractive savings options to get some of the money that will soon be released (EUR 22 billion plus more than EUR 600 million in interest). And those savings formulas could include term accounts, cash bonds, savings accounts, savings insurance, other bonds or the new state note.

Thus, the Federal Debt Agency, responsible for the operational management of the federal public debt, is simultaneously coming up with a new state note whose final terms will be announced on 3 September. The withholding tax on the state note will not be reduced to 15% this time but will be the normal 30%. So on a net basis, there will be less left anyway compared to the popular 2023 issue. Especially as the 1-year Belgian government rate, the reference rate for the state note, is hovering around 3% today compared to 3.5% at the end of August 2023 (see chart). Competition from the new state note will therefore play much less of a role.

Ask the right questions

As a saver, it is very important not to simply be taken in by a particular offer and do compare and contrast different savings packages. The latter is not always easy due to the different conditions and modalities that apply. It is therefore important to ask certain questions before choosing a particular savings formula:

• What withholding tax applies (what is the difference between gross/net)? For example, a regulated savings account is exempt from withholding tax for the first tranche of EUR 1,020 interest per person. Gross equals net in this case. Other savings accounts are subject to withholding tax of 30%.
• What is the term or how long do you have to tie up your money? On term accounts, bonds and savings bonds, the money will have to be tied up for at least a year or even several years. So your savings are not immediately withdrawable. So you need to be sure you can spare the money for that period. With other savings formulas, you can always have your money at your disposal but you may lose part of the interest return if you do so (with the loyalty premium, for example).
• From what minimum deposit or up to what maximum amount do you get the interest rate offered? For instance, there are savings accounts where you need to invest at least EUR 100,000 to EUR 125,000 to get the highest interest rate. Not everyone gets that, of course. Also, the money often has to stay for a certain period of time before qualifying for the maximum rate.
• Does the financial intermediary charge certain fees? Holding a government certificate, savings insurance or other (government) bond is not free at most banks, and the annual custody fee can quickly reach 0.15%.
• What about guarantees, is the savings deposit covered by a deposit guarantee scheme? Savings deposits with Belgian banks are guaranteed up to EUR 100,000 per person and per bank by the Belgian deposit guarantee scheme. If you hold money with foreign banks that also operate in Belgium, this falls under a foreign deposit guarantee scheme. Nevertheless, you will then enjoy the same protection offered by the Belgian deposit guarantee scheme.
• Are there any other strings attached? Do not simply add up the base rate and the fidelity premium to obtain the return. There are a lot of conditions attached to the fidelity premium and it is only acquired if your money remains in your savings account for at least 12 months continuously.

The most important question: is the remuneration fair?

When can you actually be satisfied with the interest allowance? Well, as soon as you receive at least 3.75%. After all, when banks park their savings surpluses with the European Central Bank today, they get 3.75% for it, known as the deposit rate. The theory is that financial institutions in turn give this fee to their customers on their savings. Problem is that many savers are not aware of this link between the deposit and savings rates and therefore do not complain if there is no Belgian bank offering the full 3.75% as a savings fee. Besides, that 3.75% matters because Belgian inflation was 3.64% in July. If you book a lower return on your savings, that money loses purchasing power.

If we look at the full savings offer on the Belgian market on spaargids.be we do not find any bank with one exception, Trade Republic, offering its savers 3.75%. So it remains pure theory that banks pay out that deposit rate in full. In fact, for many banks and a lot of savings products, the interest rate is sub-standard, which makes for a big drain on Belgian savers.

Via a quick calculation, we can make an estimate of how much that saver will lose annually when the ECB deposit rate is not paid. According to the latest figures, there are EUR 273 billion in Belgian savings accounts, of which roughly two-thirds are held by the four major Belgian banks (Belfius, BNP Ageas , ING, KBC ) and one-third by the other smaller financial players, around 25 or so. At those four banks, the average interest rate hovers around 0.5% to 1% net and at the others it averages between 1.5% and 2% net. In addition, Belgian savers hold about EUR 160 billion in cash bonds, term accounts and cash accounts with an average return between 1.5 and 2% net.

‘Financial institutions are underpaying EUR 10 billion in Belgium.’

All together, this makes for just under EUR 6 billion in interest on an annual basis, if we take an average interest rate each time. If you put the entire savings amount at 3.75%, there is a difference of some EUR 10 billion. Taking into account the withholding tax of 30% on that 3.75%, a net 2.62% remains and the savings income lost amounts to some EUR 5.5 billion, still a considerable amount.

Trade Republic today offers 3.75% gross

As mentioned earlier, we only find a 3.75% fee at one banking institution, namely Trade Republic. It offers this return on savings and cash balances but since it is an unregulated savings account, a withholding tax of 30% has to be charged, resulting in a net 2.62% in the end, which is still the highest net remuneration with no conditions attached. In order to escape the withholding tax, savings accounts are obliged to offer both a basic interest rate and a fidelity premium.

The interest, applicable on up to EUR 50,000, is calculated daily and deposited monthly so that these earnings also generate interest immediately. Because this offer consists only of a basic interest rate and the interest payment starts immediately, the saver has greater flexibility than usual. Is money being withdrawn? Don't worry, no fidelity premium is lost and as soon as the money is returned, it immediately earns interest again. Since this is not a Belgian account, you have to declare the interest income yourself in your tax return. That seems like a big job but it is not. And what about security? The savings you place with Trade Republic are held by one of its partner banks in Germany, Ireland or Luxembourg. The money there is protected up to EUR 100 000 per person by the respective country's deposit guarantee fund.