“Banksparen” – a modern savings account with several possibilities and perks
When I have an appointment with a client, we often meet at their workplace or home, or maybe my office. And sometimes, we agree to meet up somewhere central and combine business with pleasure. One of my clients recently suggested meeting at Bodega “De Posthoorn” on Lange Voorhout in The Hague, which he had chosen because of its traditional Dutch atmosphere and cuisine, occasionally served with an exotic new twist. It turned out to be a good choice offering a delicious lunch, and an ambiance steeped in a certain old-fashioned grandeur characteristic of The Hague, and a lot of history. The great-grandmother of our Queen Beatrix used to take her stagecoach from this location and, as I learned, had even had a tunnel built between “De Posthoorn” and the her Palace on the other side of Lange Voorhout – always handy to have a safe get-a-way.
Apart from this brief history lesson, my client wanted to learn about the modern way of saving money to repay a mortgage eventually while achieving the maximum tax rebate and thus, the lowest monthly payments. Such a savings account is called Spaarrekening Eigen Woning, or simply Banksparen.
Apart from saving up to eventually repay the mortgage, Banksparen can also be used as a savings plan for:
- Additional/Supplemental pension funds: Any money saved into this account for pension purposes can be deducted from your income tax, if you are a taxpayer. Banksparen further allows you to defer payment of wealth tax on your savings until at a later time when the annuity is paid out periodically, and generally taxed at a lower rate.
- The Golden Handshake: Some banks and insurance companies have set up special savings accounts for the so-called ‘Golden Handshake’. This is the severance pay that some employees may receive when they are made redundant. Although this amount is taxed when paid out, it is possible to transfer this money to a special savings account, which holds the Golden Handshake status. In this case, neither the saved amount nor the interest on it will be taxed until the agreed date when it will be paid out periodically.
- Funeral Expenses: Although not a particularly pleasant topic to discuss, it will also soon be possible to pay into a special savings account earmarked for funeral expenses.
Since my client’s main interest was the purchase of a home and which mortgage to choose, we focused on the benefits of this special Bankspaar savings account, in combination with a mortgage. How does this work in practice? Well, when you have a mortgage with a Bankspaar savings account, you pay interest to the bank, but you are not actually repaying the capital. Apart from the interest payments, you also pay a regular (normally monthly) premium into the savings account. The interest rate that you pay on your mortgage loan is equal to the interest rate you receive on the savings account. In this way, you save up an amount that will be used to repay your mortgage at the end of the agreed mortgage period (normally 30 years). If you stick to a number of simple rules, this savings account will not be taxed in box III – in laymen’s terms, wealth tax does not apply. Because you are required to pay into this savings account on a regular basis for a period of 20 years for it to be tax free, my Expat clients frequently ask me what will happen if they leave the country before the 20 years are up. Well in that case, a special tax exemption still applies. So, even if you are not planning to stick around The Netherlands for 20 years, a Bankspaar savings account may still be an excellent choice.
Of course, many Expats do not pay tax at all, and they cannot benefit from a tax rebate on their mortgage interest. (For my view on the future of mortgage interest tax deduction in the Netherlands, I refer you to last month’s article in The Times or check out my website at www.fvbdeboer.nl “The Swedish model or going Dutch”.) But even for those of you who are lucky enough not to pay tax and therefore unlucky enough not to benefit from the tax rebate, the Bankspaar savings account mortgage normally gives a lower monthly payment than the straightforward capital repayment models. To be able to make a calculated and sensible decision, you should be well informed beforehand. After all, the choice of mortgage is just as important as the choice of the right house.