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Friday
Mar 22nd
Home arrow Money arrow Saving accounts

Saving accounts

The savings account remains the most popular form of investment in Belgium. Belgian families hold some 20 percent of their savings in savings accounts; that is over 150 billion euros.  One can wonder why. The four largest banks pay a measly interest of 1.5 % (Fortis and Dexia) or 1.75 % (KBC and ING) (plus a fidelity or growth premium of 0.5 %).  Smaller banks try to draw clients away by offering double that interest.  Deutsche Bank for instance offers 3.5 % plus 1 %.

Savings accounts may not be very sexy or lucrative, they are risk-free and you can take out your money at short notice.   Another attraction is that they benefit from a tax exemption. The first € 1.660 in interest you receive on a savings account is tax exempt.  There is no withholding tax and you do not need to declare the interest in your tax return. If the bank pays you interest at a rate of 1.75 %, you can invest some € 94,857 tax free. A high yield account at 3.5 %, reaches that ceiling at about € 47,428.  That tax benefit is limited to real savings accounts that pay a premium on top of the interest. That is why smaller banks sometimes offer a symbolic premium of 0.01 %.

Savings accounts is tax free

Tax exemption : € 1,660 x 2 for a couple
that is a capital of € 189,714

Compare at http://www.spaargids.be/sparen/spaartarieven.html

Each spouse or civil partner is entitled to that exemption of € 1,660. They are taxed separately on their earnings and income, and they are each entitled. However, the interest that their children receive is added to their own. It is taxed in the hands of their parents until they are 18.  Children only file a tax return of their own when they start earning their own money. And then they are entitled to their own tax exemption.

Each taxpayer is now entitled to the exemption of € 1,660. On a joint savings account you have with your partner, you can double the investment, and enjoy an exemption of € 3,320.  At least that is the theory, because most banks disregard the joint exemption. They continue to withhold tax on interest over € 1,660.   They claim it is too much work to check whether the account is really a joint account.  Also banks cannot check whether their clients have money on savings accounts with other banks; that is a serious loophole.

The tax exemption and the flexibility explain the success of the savings account. However, banks are widely criticised because they have a competitive advantage but pocket the profit.  Smaller banks try their best to get a piece of the cake, but their attractive interest rates are usually nothing but loss leaders to attract new clients.  

Clients are starting to wizen up, but they remain faithful to their banks, who are redirecting them to other fixed interest investments, such as term accounts, cash certificates, and even insurance bonds. But that’s for later.

Comments (1)add comment

Nishtha Sharma said:

  I’m really impressed by the information this blog has given on Income tax saving.
15 December 2018

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