The decision everyone is looking forward to is what withholding tax will apply to the government bond issued in a year from March 4. Will it be a tax of 30 percent on interest or, as in September last year, again an exceptionally reduced tax of 15 percent?
With a gross return of 3 percent in one year, which amounts to a net 2.10 percent with a normal tax of 30 percent, the government bond is well compared to most bank term deposits in one year. Only Izola Bank beats the one-year government bond with a gross coupon of 3.35 percent, equivalent to 2.345 percent net.
If the government were to reduce the withholding tax again to 15 percent, the government bond with a net return of 2.55 percent would offer the best interest rate – and on a product that is considered risk-free.
The Debt Agency says it wants to raise a maximum of 6 billion euros through the government bond for one year and the state bond for three years. In September, the government bond raised 22 billion euros in one year.
Pay attention to your fidelity bonus
Savers who want to subscribe to a one-year savings bond and have to withdraw the money from their savings account will have to weigh any profits against the fidelity premium they will lose. The fidelity premium forms an important part of the interest on the savings account, but only applies to money that you leave untouched for twelve months. Depending on your bank, that premium can easily amount to 1.25 percent, sometimes even almost 2 percent. The prospect of (partially) losing it can be a barrier for many savers to tie up their money elsewhere for a year.
Toilets, bathtubs and the highest savings interest
The three-year government bond is beaten in terms of return by various banks. The leader, Izola Bank, offers a gross interest rate of 3.50 percent, which amounts to 2.45 percent net. That is a net 0.70 percent better than the government offer.
Izola Bank is a Belgian-owned Maltese bank. The owner is the Van Marcke family, known for sanitary products. In addition to sinks, bathtubs and shower taps, the family also offers savings products. Izola Bank is covered by the European savings guarantee of 100,000 euros. Up to that ceiling, there is no real risk for those who entrust their savings to the bank. (pdd)
The government bond with a term of three years carries a gross coupon of 2.5 percent. In any case, it is subject to a 30 percent tax on the interest, which means that the net return is limited to 1.75 percent. That is considerably less than what various banks offer. The leader is Izola Bank, followed by Medirect, Nibc, Santander, Europabank, Crelan and Triodos Bank.
Interest peaked
The yields of the new government bonds show that interest rates have peaked until further notice. The period of high interest rates as a result of derailed inflation did not last long. The European Central Bank (ECB) still has its short-term interest rate at 4 percent, but the market is already anticipating interest rate drops.
This effect is clearly visible in the one-year government bond. The one from last September had a gross interest rate of 3.30 percent. For the new voucher, this has already dropped to 3 percent. The 2.81 percent net return that the previous government bond offered in one year is a thing of the past.
Long-term interest rates have also fallen in anticipation of interest rate cuts by the ECB. An interest rate cut by the ECB will therefore normally no longer have any effect on market interest rates. “As long as the ECB does what the market expects, interest rates will no longer fall. If the ECB does more or makes it clear in its communication that the reduction can be faster, you will see market interest rates fall,” says Jean Deboutte, CEO of the Debt Agency.
De Croo against tax cuts
Prime Minister Alexander De Croo (Open VLD) made it clear on Radio 1 on Tuesday morning that he is in favor of the current tax of 30 percent on the government voucher in one year. De Croo points to the increased interest rates on term accounts and emphasizes that the government should not treat savers unequally by giving a tax discount on its own product, while savers have to pay the full amount on regular savings accounts.
Minister of Finance Vincent Van Peteghem (CD&V) is in favor of a new exception. He would have liked to score again in the run-up to the elections. But he received negative budget advice from State Secretary Alexia Bertrand (Open VLD), because according to her party the lower withholding tax would cost the budget money.
Registrations for the government bond will start on Thursday, while the government will not meet again until Wednesday afternoon to decide on the withholding tax.
