The phenomenon of negative interest rates on bank deposits has been around for a while now. But with banks announcing to lower thresholds starting 2021, more people are facing it.
Negative interest
Negative interest means that instead of the bank paying you interest, you pay interest to the bank. A strange phenomenon. After all, your savings are a claim on the bank. And then it would make sense for the bank to pay you a fee for the money you make available. However, the current economic reality is that the bank charges you a fee because it holds your money for you.
Rate
What rules your bank applies is, of course, best to check with the bank. Most banks, which apply a negative interest rate, have set the rate (provisionally) at -0.5%. This rate is already charged by many banks from 2021 on balances above €250,000 (up to and including 2020, these thresholds are often at €1,000,000 or even higher).
It is expected that the rate will increase (i.e. become more negative) some more in the coming period. And that the thresholds will be lowered some more.
Solutions
Most people are not eager to pay interest to the bank on their savings. Yet there are no really safe alternatives to a bank (savings) account. Investing in securities, real estate or other assets simply carries more risks.
Of course, you can use up your savings, either by buying nice things with it or gifting it to your (grand) children (see also our article Additional €1,000 tax-free gift in 2021). But then that's not really an alternative to saving.
However, you can consider paying off loans (e.g. for your own home) or putting money into your pension (or other retirement provisions).
Spreading your (savings) over several banks is also a solution for now. But when banks lower the thresholds, it may become increasingly difficult.
Deposit Guarantee Scheme
You can also spread your bank deposits across several banks in view of the deposit guarantee scheme. Under the deposit guarantee scheme, the government guarantees the bank's debt to you. However, this guarantee applies up to a maximum of €100,000 (per bank).
Box 3
Just because you pay interest to the bank does not mean the taxman does not want to receive income tax. After all, many bank accounts fall into Box 3 (income from savings and investments). In that box, income is calculated on a flat-rate basis. In 2021, this uses a low return of 0.03% and a high return of 5.69%.
On the basis in Box 3, the flat-rate income is:
| Income above: | Income up to: | Fictitious return |
| tax-free capital | € 100.000 | 1,8978% |
| € 100.000 | € 1.000.000 | 4,5014% |
| € 1.000.000 | - | 5,69% |
The tax-free capital in 2021 is: €50,000 (per tax partner).
The box 3 rate will be increased by one percentage point from 2021 to: 31%.
The levy in Box 3 can be avoided by transferring the bank balances to a savings private limited company or an open mutual fund. This must then be arranged before 1 January 2021. See our article Savings Limited Company to stay up for another year.