Belgian Minister of Finance, Vincent Van Peteghem, has proposed the introduction of a new government bond with a one-year return, aiming to compete with savings accounts. As a means to increase pressure on banks to raise their interest rates, Van Peteghem plans to reduce the withholding tax on this bond from 30 to 15%, resulting in a higher net return compared to the best-performing savings accounts currently available.
Government bonds are issued by the Federal Government, allowing individuals to temporarily lend money to the government. The minimum deposit for these bonds is €100. At the end of the term, investors receive their initial deposit plus the set interest rate.
According to a recent article published by VRT News, Van Peteghem explained to the Finance Committee that the proposal for a one-year return government bond aims to stimulate competition among banks and offer individuals an attractive alternative. While there are already government bonds available with returns spanning three, five, or ten years, introducing a one-year return bond puts the government in direct competition with banks. VRT reports that Van Peteghem highlighted that even banks require a minimum commitment of one year to offer loyalty bonuses on savings accounts.
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The Minister also expressed his intention to reduce the withholding tax on the new state bond. Currently, the withholding tax on existing government bonds stands at 30%, but VRT reports that Van Peteghem wants to explore the possibility of reducing it to 15% for the new bond. By lowering the withholding tax, the net return on the bond would increase significantly, surpassing the returns on the highest-yielding savings accounts available.
The suitability of the government bond as an investment option depends on individual circumstances, Peter De Keyzer, manager at Growth Inc. told VRT. He views the bond as an appealing alternative to savings accounts, especially considering the potential advantage of a reduced withholding tax. De Keyzer also emphasised that the government cannot go bankrupt, providing a sense of security and a high probability of receiving the expected return.
Jean Deboutte, representing the Federal Debt Agency, told VRT that the effective yield of the new government bond can only be determined based on the current interest rate. The bonds will be issued quarterly (in March, June, September, and December) and will be available for subscription by private individuals starting from the end of August.
Investors can sign up for the bond in two ways, according to Deboutte. They can go through their own financial institution or use the website of the Federal Debt Agency. In the latter case, individuals will have a seven-day window to complete an electronic form on the website and transfer the desired amount. The exact dates for subscribing to the bond will be announced in due course, typically around August 24 or 25.
