The interest rates offered for savings accounts in Belgium remain among the lowest in the eurozone. However, when it comes to fixed term accounts and home loans, customers are much better off here.
Belgian banks have recently come under fire for resisting calls to raise their savings rates. But banks were pressured to raise rates when in September 2023 Finance Minister Vincent Van Peteghem launched one-year State Bonds with significantly higher returns than in savings accounts. Savers withdrew record funds from Belgian savings to instead deposit in the bonds.
But banks still did not increase the returns they offer to levels that experts believed would be manageable. Savings rates in Belgium remain much lower than in most other eurozone countries, a study by the IESEG School of Management showed.
"The average rate paid by banks on the total outstanding amount of these savings deposits in Belgium in June was just 0.96%," said Eric Dor, the Director of Economic Studies at IESEG. "This is lower than in most other eurozone countries."
Oligopolistic market
In Luxembourg, people earn on average 3.44% interest on their savings. Meanwhile in France this figure is 2.55%, as savings accounts are regulated with interest rates set by the public authorities. Among Belgium's neighbours, only in Germany is the rate lower (0.76%).
The difference in rates comes as many other eurozone countries have a more competitive market between banks for savings deposits. "Belgium's competition authority recently noted that the savings deposits market is fairly oligopolistic," Dor told The Brussels Times.
The so-called loyalty rate – which savers only earn on funds deposited for at least one year – further discourages savers from switching banks (as they will lose part of their returns). This also makes it difficult to compare offers challenging, which is why experts recommend replacing the system with an overall savings rate.
Fixed term accounts and home loans
By comparison, the interest rate on fixed term accounts (where money is fixed for a certain period) is higher. "The average rate offered by banks on fixed term accounts of up to one year is higher in Belgium than in many other eurozone countries," Dor said.
Belgian banks offered 3.27% interest on new fixed term deposits up to one year in June, compared with 2.81% in the Netherlands, 3.11% in Germany and 3.24% in Luxembourg. "Raising rates on regulated savings accounts is costly because such an increase affects a total outstanding amount of around €273 billion."
"Belgian banks prefer to compete with each other, and with state bonds and other investment formulas, by offering better rates on fixed term accounts, with smaller outstanding amounts." In June, around €101 billion was kept in Belgian fixed term accounts.
In Malta, Lithuania and Finland, where interest on savings accounts was also markedly lower, the same trend of higher rates on fixed term accounts is observed.
The popular one-year bonds may have a retroactive effect on banks increasing rates in Belgium, as the €22 billion invested in the bonds will now be paid out, spurring banks and other companies to compete for the large injection of capital. But so far only Dutch bank ING has made a considerable offer, when it presented 3.80% interest on a 1-year term account, and 4% for those who pre-registered.
Credit: Belga / Hatim Kaghat
Customers of Belgian banks are better off when it comes to home loans. The average rate for outstanding loans, both new and old, is the third-lowest among eurozone countries included in the study.
"The average rate received by Belgian banks on their outstanding home loans is just 2.17%," Dor said. "This is partly because banks lend mainly at fixed rates in Belgium, unlike banks in Spain or Portugal." In Belgium, the rise in lending rates is limited to new loans, so old loans granted at very low rates retain these conditions. Only in France (1.74%) and Germany (2%) are lenders in a more advantageous position.
"However, even for new home loans alone in Belgium, the average rate – at 3.43% – is still lower than in most other eurozone countries." This is because Belgian home loans are low-risk for the banks as they come with strict conditions. "This means that they can be granted at a relatively low interest rate. The downside is that it is quite difficult to obtain a mortgage."
