Investment products

How are bank deposits taxed?

Bank deposits are savings products in which you deposit a certain amount of money with the bank and earn a specific return based on the amount and the length of time you leave it there.

Another way to view a deposit is as a loan that you make to the bank. Deposits have always been one of the most important products offered by financial institutions. If the financial institution were to go bankrupt, a significant part of your savings would be guaranteed by the Deposit Guarantee Fund.

There are two types of bank deposits:

Term deposits: You promise to leave your money with the bank for the time stipulated in the agreement. If you withdraw it earlier, you will have to pay a penalty.

Demand deposits or interest-bearing accounts: You can recover part or all of your money without penalty. If you make a partial withdrawal, the rest of your money will continue to yield the agreed interest rate.

As we've already said, you obtain a profit on your deposits and therefore have to declare them in your tax return as capital gains. However, you are only taxed on the profit obtained.

How are deposits taxed?

You only pay tax on the profit obtained from your bank deposits, not on the initial amount deposited. The interest earned on term deposits is taxed as capital gains in your tax return.

Imagine you have a bank deposit of €15,000. You recover the €15,000 deposited plus a profit of €1,000. In this case, you will only pay tax on the €1,000 obtained as profit. You won't pay anything on the initial €15,000 deposited.

These earnings from your deposits must be added to the profit from any other savings you have. Once you have offset your expenses, losses and gains, you will know which bracket you are in and what rate of tax you will pay.

There are four scales in the taxation of deposits depending on the amount: