Belgium successfully launched the state bond in September 2023 and received €22 billion for the government. Over half a million Belgian investors invested their money through the state bond. We explain how you can take part. But we also highlight the downsides of the state bond. It turns out that there are better alternatives, both for short- and long-term investing so you can get the most from your savings.
What is the Belgian state bond
Belgium issues state bonds to raise money from its citizens to invest in the country. The bonds are a safe investment because the risk of the Belgian government going bankrupt is very low.
How does the state bond work
When you buy a state bond, you effectively lend money to the government. In return, the government pays you interest, also known as coupons. It pays out the interest every year. Each bond has a certain maturity. At the end of the maturity period, the government pays back the initial amount, also called the principal.
On 4 June 2024, the Belgian government issued 1-year bonds with an interest rate of 3.2%. Suppose you bought this bond for €100. Then, after 1 year, in June 2025, the government will pay you €103.20: a €3.20 interest and the €100 principal amount. Note that you have to pay taxes on the interest (see more about that below).
How to buy a state bond
You can buy state bonds through the government website. This is the best option as you avoid any fees. The government issues bonds four times per year.
You can also buy state bonds from your bank. But some banks charge fees. So people prefer buying directly through the government. Banks that charge fees include Axa, Belfius, BNP Paribas Fortis, Crelan, Deutsche Bank, ING, and vdk bank, among others.
The minimum to invest in a state bond is €100, which makes it a very accessible investment. But you must invest in multiples of €100.
How to sell your state bond
If you hold your bond until maturity, which is 1 year for a 1-year bond, you don't have to do anything. Upon maturity, the principal amount is automatically deposited into your account, restoring your initial investment. At the same time, you will also receive the net interest.
You can also choose to sell your bond at any time on the secondary market through a stock exchange. In that case, you'll need a brokerage account to get access. The price you will get may be more or less than what you paid for it, depending on market conditions. Bond prices are particularly sensitive to changes in interest rates. They increase when interest rates go down, and vice versa.
The taxes for a state bond
You have to pay a 30% withholding tax on the interest. So if you bought a state bond in with a 3.2% interest rate, net it will yield 2.24%.
If you bought the state bonds via a bank, they count towards the €1 million threshold for the tax on investment accounts. If you have more than €1 million in assets, you will have to pay a yearly 0.15% tax.
Finally, if you buy or sell a state bond on the secondary market via a broker, you will have to pay a transaction tax of 0.12%.
The return on the state bond
The interest rate of the state bond issued in June 2024 was 3.20%. After the 30% withholding tax, this results in only a 2.24% net interest rate. Earlier state bonds had an even lower return, because the interest rates set by the European Central Bank (ECB) were lower. For instance, the 5 year state bond issued in June 2022 had an interest rate of only 0.7%. In general, the interest rate on the state bond more or less follows the interest rates set by the ECB.
You should also consider the impact of inflation. In June 2024, the inflation rate in Belgium was 3.74%. So the real return of the June 2024 state bond, meaning after inflation, is -1.50%. Yes, you're effectively losing money.
Should you buy the state bond?
We are not big fans of the Belgian state bond. For short-term investing (meaning a year or two), there are better alternatives.
First, the German and French governments issue "zero bonds". They don't have a coupon, and they also don't have a difference between the issue price and the price at maturity. This means that they're exempt from the withholding tax. The German 1-year bond DE0001141810 has a net interest rate of 3.19%. The French 1-year bond FR0014007TY9 has a rate of 3.28%. Those rates are about 1% higher than the Belgian 1-year state bond.
There are also savings accounts that yield an interest rate like the state bond. For instance, the Ritme Spaarrekening by vdk bank offers a 3.15% interest rate. These savings accounts have a 15% withholding tax on the interest, whereas it's 30% for state bonds. On top of that, the first €1,020 in withholding tax is exempt. Also, a savings account is more flexible. You can withdraw your money anytime, without fees. You don't need to wait until a maturity period ends.
Lastly, if you're investing your savings for a longer period of time, there are alternatives that will yield a much higher return than either a state bond or a savings account. In particular, ETFs are the best way for most people to grow their wealth over the long term.
ETFs, the best alternative for long-term investing
ETFs (Exchange-Traded Funds) are investment funds. They invest in hundreds, or even thousands, of stocks, bonds, or other types of investments. This diversification is a big benefit of ETFs. It makes them more attractive than an individual stock. Instead of investing in one company, you invest in an entire market through an index. For example, you can invest in a BEL 20 ETF and benefit from the performance of all the largest Belgian stocks.
Most ETFs track a market index, which is why they're also called trackers. Index investing is a style of investing based on indexes, and where you typically hold your investments for the long term. With index investing, also called passive investing, you ignore daily price changes. You trust the market will grow long-term. And the data shows that this strategy gives the highest return in most cases.
Return of an ETF vs a savings account
When you invest in an ETF, you invest in a large part of the global stock market. The stock market has given high returns over the last century, due to a growing economy and constant innovation. A globally diversified ETF like IWDA, which tracks the MSCI World index and includes stocks like Apple, NVIDIA and LVMH, delivered an average annual return of 10.2% since 1979. This is much higher than a savings account or Belgian state bond and it's a significant return above inflation.
Why ETFs are great
There are several reasons why ETFs are the best long-term investment for most people.
Best suited for the long-term
Investing in ETFs compounds to substantial returns over time. And it beats the active funds sold by your bank!
Diversification
You’re exposed to thousands of companies in one go through a single fund. And diversification is key to good investing.
Simplicity
Once you’ve selected the right funds to invest in, you can sit back and watch your investments grow. There's no need to waste time analysing individual stocks.
Cheap
Partly due to the economies of scale and lack of active management costs, ETFs are a cheap way of investing.
Tax efficient
Belgium is quite unique in that capital gains for investments in stock ETFs are not taxed. There is also no withholding tax on them. This makes ETFs particularly tax efficient compared to state bonds.
Conclusion
We explained how the Belgian state bond works and how you can buy them. But we also showed why they may not be the best investment for you. For short-term investing, foreign government bonds or savings accounts are better. For long-term investing, a safe investment like a state bond has a low return. So it is unlikely to help you meet your financial goals. ETFs are a better choice. They can build long-term wealth, diversify globally, and save on taxes. As you explore these options, align your investments with your goals and risk tolerance. This will help you make the most of your savings.