Belgium will again issue state bonds for one-year and three-year terms, with subscriptions opening on Thursday. But are they a better deal than traditional savings accounts?
The latest launch marks the first reissue of the one-year state bond since its inaugural issue in September 2023.
Branded a "major success" after raising a total of €21.896 billion, Finance Minister Vincent Van Peteghem had initially launched the bond to offer an alternative to the traditional savings account, hoping it would lead banks to increase their savings rates. This is also the case with the latest bond.
While Van Peteghem has pushed again for the most favourable terms, it is unlikely that the next one-year state bonds will be as much of a triumph.
Net yield
The three-year state bond will be issued with a gross coupon – the annual interest the saver will get on the bond – of 2.50%. This type of bond has always been subjected to a withholding tax rate of 30%. This means the three-year state bond will give a net yield of 1.75%.
The success of the first and previous one-year state bond was driven largely by the reduced withholding tax of 15%. The normal withholding tax of 30% on a state bond was reduced to 15% to compete with banks' savings accounts and entice Belgians to sign up for the initiative. With a gross coupon of 3.30% and a withholding tax of 15%, this brought a net yield of 2.81%.
Van Peteghem again pushed for a reduced withholding tax to entice savers to invest in the state bonds, but just hours after the announcement, State Secretary for the Budget Alexia Bertrand openly opposed the issuance of this type of state bond. The matter divided the Federal Government for several days. A final decision on the withholding tax was expected on Monday, but only on Wednesday afternoon, just hours before subscriptions opened, was the decision announced.
Finance Minister Vincent Van Peteghem. Credit: Belga / James Arthur Gekiere
Van Peteghem's cabinet confirmed to The Brussels Times that because the core cabinet could not come to a conclusion, the 30% rate was retained for the one-year state bond.
It will therefore have a gross rate of 3% but with this higher withholding tax, the net one-year yield is just 2.10%. With a withholding tax of 15%, this figure would have been 2.55%. So, how fiscally attractive is the state bond compared to other savings options?
Subscriptions for state bonds can be made from Thursday 22 February until 1 March, unless the campaign closes early (if the maximum revenue cap of €6 billion is reached). This means it runs on a first-come, first-served basis.
While this limit is far less than the almost €22 billion raised in September, it is still a large sum of money that could be taken away from banks. The last one-year state bond saw record amounts of cash – a total of €31.5 billion – being withdrawn from Belgian savings accounts, and to avoid this recurring, banks with lower rates may review their conditions and increase theirs.
However, in many cases, the difference between the net yield on one-year government bonds and the rates on savings accounts and term accounts is smaller than in September.
Comparing options
A comparison by financial experts at Test Achats between the state bonds and other products that require savings to be fixed for one year aimed to clarify the playing field for savers.
Firstly, those looking to subscribe to the state bonds are advised to do so via the online bank MeDirect, which is also in charge of distributing the latest state bonds. It is offering a premium of 0.20% of the subscription amount to existing and new clients who subscribe to the new government bonds through them.
"If you are not yet a customer of this bank, this offer might be an opportunity to become one. The bank also offers good terms on savings accounts," Laura Clays, Test Achats' spokesperson, noted.
For those who are more interested in keeping their money in traditional savings accounts, the organisation compared the best rates on the market. These include the Fidelity Account at NIBC, which offers a total of 3% interest rate for people keeping their money in this account for at least one year (base rate of 1.20% and fidelity premium of 1.80%). ING's Tempo Sparen account and Argenta's Groeirekening offer the same return.
Santander's Vision Plus account offers 2.85% interest after one year while MeDirect's Essential Savings offers 2.80%.
"In each case, this is more than what the government bonds offer," Clays noted. She stressed that only the fidelity premium is guaranteed for one year, while the base rate can increase or decrease at any time. "But given the significant difference in returns compared to government bonds, we still prefer the savings accounts above.
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When it comes to term accounts – an account in which money is placed for a predetermined duration – customers should compare the fixed term. On a one-year term, the best accounts currently offer a return of around 2% net (Deutsche Bank with 2.06%, Triodos with 2.03% and MeDirect with 2%). "This is less than the return on the state bond."
For term accounts running for three years, the best term options can be found at Europabank (2.03% net) and MeDirect (2% net). "However, not all banks communicate openly about their rates," Clays warned. "It's possible that some banks, to avoid an excessive outflow of cash to state bonds, temporarily offer the same conditions or even better conditions."
Finally, Test Achats noted that there are other bonds available that offer slightly more than the new one-year Belgian state bond, such as Germany's zero-coupon bond. Taking into account 0.75% purchase cost, the net yield of this bond is 2.50%.
