Term accounts: how to choose wisely?

A bank account that does not charge all the usual fees (for account opening, management, transactions, etc.) and that offers gains after a certain period of time is an ideal investment.

A loan given to a bank

This is how the principle of the term account can be considered. The latter can in fact be assimilated to the loan of a sum of money by a saver to his bank. The duration of this “loan” is known: the customer of the bank will thus be able to repossess this capital once the period provided for has elapsed. It is therefore an adequate formula for a saver who has a precise idea of when he will need to get his money back. In order to open a term account, a minimum threshold must be maintained, usually a sum of at least 150 euros. The money thus placed is blocked for at least one month. This maturity date (decided in advance) must be stated in the letter, otherwise the saver will have to pay penalties. In return for these conditions imposed by the bank, the customer can benefit in the long term from remuneration in the form of interest. The rate of this income is determined at the time of subscription. The longer the sum remains in the account, the more successful the earnings will be.

A special savings account

The interest earned on such an account is calculated daily, unlike the interest earned on savings books. Savings books generate profits that change only every two weeks. In general, dividends from TAs (term accounts) are calculated on a “simple interest” basis. They are therefore profits corresponding only to the amount of a capital and do not take into account the previous interest. WCB gains are taxed as income from movable property. Since the very beginning of 2018, this interest has been subject to the FRL (flat-rate levy). This tax levy amounts to 30% in total, of which 12.8% is for income tax and 17.2% for social security contributions. The remuneration of the TA is freely set by the banks. The benchmark for fixed-rate TAs is the Euribor. This is the average interbank rate in Europe and each institution concerned takes its own margin. The deposit on the term account must be made in one go. In order to add money, the saver has the obligation to open another TA. These sums are therefore lent to the bank for a minimum of one month but can be deposited for several years.

The TA in a concrete way

When subscribing to this account, the saver actually signs a contract with the bank concerned. In order to choose the best term account, the terms of the contract must be analysed beforehand. The contract mentions the amount lent to the bank. A minimum (and maximum) amount is required, it varies according to the banking institutions. The contract also specifies the duration of the deposit and the remuneration of the account. This is determined by the interest rates charged and by the date on which the saver can get his money back. It is also necessary to take into account the amount of the penalties to be paid if one wishes to recover his capital before the planned maturity date. The initial rate of return will then be reduced, to the detriment of the investor (otherwise, this percentage is guaranteed for the duration of the contract). In this case, it is necessary to respect a notice period. At the end of the contract with the bank, it is possible to renew the TA.