In September, the billions that savers and investors invested en masse in the tax-friendly government bond a year before will be released. “That is the event of the year for us,” says a private banker at a major bank. There is less nervousness among the smaller players about the return of those 22 billion euros.
In 2023, the government bond experienced a revival, thanks to Minister of Finance Vincent Van Peteghem (CD&V). Under his impulse, the Treasury issued a tax-friendly voucher for 1 year in September last year. Tax-friendly, because instead of the usual 30 percent withholding tax, this voucher came with a tax on interest income of only 15 percent.
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This left savers with a net 2.81 percent, more than what the best savings account yielded at the time. Van Peteghem thus entered into direct competition with the banks, not all of whom were equally eager to translate the increased market interest rate into a higher compensation on savings accounts. Many savers therefore saw value in the government bond. The banks saw no less than 21.9 billion euros flow to the Treasury, money that will be released again in September of this year when the 1-year term expires.
The private banks – and especially those that are part of a major bank – also saw money flow into the government bond. A survey by De Tijd last year showed that around 20 percent of private banking customers at BNP Paribas Fortis subscribed to the government bond. At ING Private Banking this was 8.4 percent. The smaller players on the market were an absolute minority.
Trackers
“Savers who want to place money in the short term without risk are not our typical customers,” says Jérôme van der Bruggen, chief investment officer for private banking at Degroof Petercam.
‘Our clients are long-term investors. The government bond is more of an alternative to a savings account, but that is not our natural habitat. We are a private bank that is mainly active in the financial markets. We make a difference with bonds and shares. But that does not alter the fact that the issuance of the government bond has led to discussions with customers, for example about the situation on the bond and interest rate markets.’
We are ready to make an attractive offer to customers.
A similar sound at Puilaetco. “We advised the few customers with questions about the government bond at the time to invest in other government bonds, which then offered better quality and a higher return for the same term, or in term deposits, ultra-short funds and trackers,” says Dimitri Christiaens, head investment & client solutions Belgium. ‘We will certainly advise our customers again in that context in September.’
The government bond was also not an issue for Bank Delen. Of a capital of 42 billion euros, only 6 million flowed from the bank to the government bond. Private banks require little or no deposits because they do not offer mortgage loans. ‘We also did not wait for the government bond to offer attractive investments. As always, we oriented our customers to other investments, such as bonds that gave a higher return than government bonds,” says CEO Jacques Delen.
‘The government bond was mainly aimed at a retail audience that was looking for a higher return compared to savings accounts. We understand that, but as a private bank we can offer a wider range of alternatives to our customers. And yes, sometimes with a better return and higher quality for the same term and tradability,’ says Christiaens.
Major banks
Much more is at stake for the major banks, as they saw significant amounts of money drain from their accounts, forcing them to look for alternative financing. BNP Paribas Fortis and ING did not wish to respond to questions about the return of the money in the government bond. “It’s too early for that,” is the explanation. Or: ‘That is commercially sensitive.’
But off the record it sounds like this: ‘The issuance of the government bond was the event of the year last year. Of course we are working on that. But September is still a bit too far away to make concrete statements. The question is also what the government will do.’
Another banker: ‘It will certainly be an important moment to get the money back to us. Now we may be fighting with equal weapons (a withholding tax of only 15 percent applies to the government bond of September last year, ed.), but because interest rates can still go in any direction, I cannot yet give any concrete direction,” says a private citizen. banker who prefers to remain anonymous.
I can propose to my clients a term account with a good return. With a very good customer I can go even further.
Yet another private banker, who works at a major bank, puts it this way: ‘The repayment of the government bond in September is the event of the year for us. We are ready to make an attractive proposal to the customer. The intention is also to see the customer some time before the government bond expires. We were also ready with all resources at the end of February when it looked as if another tax-friendly government bond would be introduced. When it turned out that the tax benefit was not available, it ultimately became a non-event.’
KBC is a bit more talkative. “Of course we are already having discussions with our customers – private individuals and entrepreneurs – about the government bond today,” says Joke Reynaerts, who heads KBC’s private bank. We’re not going to wait until August or September, that wouldn’t be the right service.” According to Reynaerts, the government bond was a good investment. ‘But we see that many other investments have performed better, such as some bond investments. A number of stock exchange listings also performed very well during that period.’
‘To create awareness of what the possibilities and opportunities are, we enter into discussions with customers. Of course, against the background of the entire portfolio and the customer’s profile,” says Reynaerts. ‘Those conversations have already started. That we proactively talk to our customers about the possibilities is what they expect from us. It’s part of the job.’
Belfius also considers the return as an important event. ‘We are busy determining our approach. It is still too early to communicate concrete information about this. We aim to offer a wide range of fixed income products to meet all our clients’ needs.’
Invest in three years
Banks cannot yet say much about the concrete strategy. Off the record, a private banker says: ‘I can propose to my clients a term account with an attractive return. If it concerns a very good customer, I can give a slightly higher return than normal, but in that case I must first get the approval of my boss.’
‘I discuss with the customer what we are going to do with the cash. If the customer is willing to take a little more risk, I think well-managed holdings such as Ackermans & van Haren and Brederode are a good alternative in the long term.’
The problem with money that you invest in a very short term, such as a year, is that within a year you have to decide what to do with those money.
Van der Bruggen (Degroof Petercam): ‘The problem with money that you invest in a very short term, such as a year, is that you have to decide again within a year what you are going to do with those money. Two alternatives are: investing in the slightly longer term (three years) or investing in bonds of European companies.’
‘With corporate bonds you take a slightly higher risk, but we think that quality companies represent solid credits. We then proposed a diversified portfolio of corporate bonds. Lending money to the Belgian state then yielded 3.30 percent gross, or 2.81 percent net. Our alternative gave 4 percent gross and 2.50 percent net, all costs included. That is less than the 2.81 percent of the government bond, but then you do not have to make a decision again within a year. Some have followed our advice, others have signed up for the government voucher. The customers do what they want.’
‘Today the conditions for investors have deteriorated somewhat. Three-year corporate bonds no longer yield 4 percent gross, but 3.5 percent. Net, all costs included, that gives 2.15 percent. If the government bond were to come to the market today, it might yield around 3.10 percent gross because the one-year interest rate has fallen somewhat. Net, and we think that this time the normal withholding tax of 30 percent will be applied, it will be 2.15 percent, or the same,” says Van der Bruggen.
‘We would still recommend investing over three years and investing in a diversified portfolio of corporate bonds. Such solutions still seem to us to be a good investment for people who do not want to take too much risk and do not want to invest for too long. We make it clear to our customers that the investment horizon is longer than with the government bond and that this alternative entails more risk.’
Degroof Petercam does not recommend corporate bonds from outside Europe. ‘Savers who purchase government vouchers are mainly risk-averse customers. It is not advisable for them to take additional exchange rate risk. Over three years, exchange rate fluctuations can have a major impact on returns.’
Alternatives to the government voucher
The tax-friendly government bond with a term of one year has a net return of 2.81 percent. Will there be alternatives that yield the same return on maturity, September 4?
The term account with a term of one year has many features in common with the tax-friendly government bond. But there is no bank that offers a term deposit with a net return of 2.81 percent. The main reason is that the withholding tax for term deposits is 30 percent and that for the tax-friendly government bond is only 15 percent. The Maltese Izola Bank offers the highest net return at 2.35 percent, according to an overview by savingsguide.be. The major banks do not publish returns on their term deposit accounts. Moreover, the expected interest rate cuts by the European Central Bank (ECB) are likely to also reduce interest rates on one-year term deposits. There are also no offers of term accounts with longer terms that yield a net yield of 2.81 percent or more.
The savings certificate is even more similar than the term deposit to the government certificate. Last week, Belfius was the first major bank to relaunch the savings certificate. The net return is lower than 2.81 percent, because 30 percent withholding tax is due. BNP Paribas Fortis and Crelan also plan to issue savings certificates again, but the timing is not yet known.
Some savers consider the savings account as a possible alternative to the government bond, although savings accounts have some other features. Savings accounts have the advantage that the money can always be withdrawn and that they are tax-friendly. But the interest rate is not guaranteed for a longer period of time. Five banks offer savings accounts with a net return of more than 2.81 percent: VDK, ING, NIBC, Santander Consumer Bank and Argenta. But that return is not guaranteed, because banks can lower savings interest rates at any time. That will probably happen when the ECB cuts interest rates. In addition, certain conditions apply to some high-yield savings accounts. At VDK, ING and Argentaka, a saver can save a maximum of 500 euros per month on a high-interest account.
There are bonds and shares with an expected net return of more than 2.81 percent in the coming year. But they usually have a higher risk profile than the government bond, because the price of a bond and a share can fall. In addition, returns are reduced by purchasing and selling costs. That is why most bonds and shares are especially suitable for investors with a time horizon of more than one year and who are willing to take some risk.
