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taxation.be

Sunday
Jun 16th
Home arrow Money arrow Term deposit accounts and savings certificates

Term deposit accounts and savings certificates

Where do the clients of the major banks put their money that they take out of their savings accounts? They invest in savings certificates or term deposit accounts.

The money invested on term deposit accounts cannot be withdrawn for a certain "term" or period of time: two weeks, one month, three months, a year or several years. These accounts are about as important in size as savings accounts, but that is in part because companies can hold such accounts as well.   

These accounts offer a higher interest rate with the big banks that vary around 4 % depending of the duration and the capital invested. There is not much difference in interest in the short and the mid term. Therefore, do not block your money too long.

That interest can be paid out regularly, or it can be capitalised. That means that it is added to the invested capital until the end of the term.

But that interest is taxed at 15 % which the bank will withhold. And if you receive the interest after tax, you are released from the obligation to declare it in your annual income tax return.

Savings certificates (bons de caisse) are IOUs issued by a bank for amounts of € 250, 1,000, 2,500 and 10,000, typically for fixed terms of 1, 2, 5 and even 10 years.  These savings certificates are continuously issued by the bank. However, contrary to term deposit accounts, banks do not charge any fees for issuing savings certificates.

Savings certificates were traditionally issued in bearer form, with detachable coupons for each year’s interest. They helped create the myth of the Belgian dentist. For decades he had a reputation with international bankers as the unsophisticated, reasonably well off investor with a predilection for bearer certificates. Until 2005 he could collect the interest tax free in Luxembourg.  And he could avoid inheritance tax by handing over his savings certificates to his children.  A savings certificate can easily be handed over for a hand to hand donation, which is a valid way of avoiding inheritance tax, as long as the donor lives for another three years.

That Belgium has abolished all forms of bearer securities as of 2008 does not mean the end of the savings certificate. Even if they are held via a securities account, they remain a democratic and transparent investment.

The interest is usually paid out once a year (after deduction of the 15 % withholding tax). Capitalisation certificates pay the interest at maturity, and some banks allow you to choose every year whether you want the interest to be paid out or to be capitalised. And those are just some of the forms savings certificates come in.

Although the interest rate of savings certificates dropped recently to 3.75 % for a one year certificates, they remains quite attractive compared to the savings account.  When share prices fell on the stock exchanges, investors rediscovered the savings certificate as a safe investment.

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