Government bonds, savings accounts, or term accounts: which should you choose?

From government bonds to classic savings accounts: there is extra money to be made with your savings. Curious about how to generate as much return as possible? How to take as little risk as possible? Or finding the product that will allow you permanent access to your savings? Say no more!

No crystal ball needed for your return

Would you like to have certainty about your returns? Then a term account, government bond (issued by the state), or savings certificate (issued by a bank) are perfect for you. With these savings products, the interest rate is fixed from the start for the entire term. This way, you know exactly how much your savings will yield.

Savers love hearing that. Just think of the enormous hype surrounding the one-year government bond of September 2023. The exceptionally reduced withholding tax brought the net interest rate to an attractive 2.81 percent, and 630,000 savers didn't have to think twice! A record amount of 22 billion euros was deposited, the majority of which had previously been parked in savings accounts.

On regulated savings accounts, you receive both a basic interest rate and a loyalty premium. The basic interest rate is flexible and often moves with the European Central Bank's interest rate policy. When the ECB implements an interest rate cut, it usually doesn't take long for banks to lower their savings rates.

The loyalty premium, by contrast, is fixed for 12 months as soon as you put money in your savings account. This encourages you to leave your principal in the account for at least a year because only then will 'your loyalty' be rewarded. Are you withdrawing your money earlier? Then you should be aware that you will miss out on the loyalty bonus on the amount you withdraw.

Did you know? Each bank determines its own conditions for term accounts. The interest offered often depends on the amount you want to deposit. At Keytrade, we are happy to tell you all about it!

First (financial) aid in case of emergencies

The old water heater breaks down, the car has damage after being hit (of course, that little pole was at fault), your child kicks a ball through the window—all in one week. Not only are you the unluckiest person ever, but you probably also want to access your savings quickly and easily to cover the extra costs. This is perfectly possible with a savings account, though you will forfeit the loyalty premium for any amount you withdraw.

Did you know? Their flexibility makes savings accounts extremely popular. In total, there is a staggering 269 billion euros in Belgian savings accounts!

This is not possible with a term account or savings certificate. They work like a contract: the term and the interest are agreed upon in advance with the bank. To withdraw your money before the end of that term, you always pay a termination fee and, depending on your bank, additional costs. Even though you may be able to resell a certificate on the secondary market, you will also pay additional costs, such as the stock exchange tax.

The best risks are well-calculated

Every investor is unique. Some like a lot of risk, others prefer to play it safe—even if the potential return is lower. Does this sound familiar? Both the savings account and the term account are covered by the deposit guarantee scheme. This means that the State guarantees up to 100,000 euros per person should your bank go bankrupt.

You can also enjoy peace of mind with the Belgian government bond. Belgium is a reliable issuer that cannot afford to default. This is not the case for all countries, so you should be well-informed before subscribing to a treasury bond from, for example, an unstable country. The promised returns may be higher, but so are the risks.

Psst, don’t forget about taxes

Benjamin Franklin already knew: "death and taxes are the only certainties in life.” Even when it comes to your savings. But there is also good news. Per person, the first tranche of 1,020 euros in interest on classic savings accounts is exempt from withholding tax in the Belgian tax return for 2024. On the second tranche above 1,020 euros a withholding tax of 15% is to be paid. For clarity, you pay tax on your return, not on the savings in the account.

In the case of the term account and state bond, this withholding tax is usually 30%. Much less attractive. On the government bond of September 2023, the Belgian state reduced the withholding tax from 30 to 15 percent. This significantly increased the net return to 2.81%. The ensuing hype was a fact. Note that the State has since reinstated the withholding tax of 30%. In the example below, we illustrate how much your savings will yield if you subscribe 10,000 euros to the June 2024 one-year government bond.

Deposit: 10,000 euros Gross interest: 3.2% = 320 euros Withholding tax: 30% = 96 euros Net interest: 224 euros

Finally, always check what costs the bank or broker charges, such as a broker's and custody fee. Because those costs will also nibble at your returns.

The best way to save …

… depends on the person. First, determine why you want to save. For example, have you inherited a large sum that you want to set aside for the coming years? Or would you like to create a buffer for small and large emergencies? The answer directly impacts the savings formula that suits you best.

TIP: always compare similar savings options at different banks. Look beyond the promised return and also consider the availability and safety of the product in question.