This article will reveal the situation with deposits in Portugal and what other options exist for people who want to invest money without risk.
Banks in Portugal offer their clients make contributions under these names:
- Deposito a prazo - term deposit, when you invest money for a certain period and receive income at the end of this period. You can withdraw money before the end of the term, but in most cases, this will mean a complete loss of profit that the bank should have charged you.
- Conta-poupança is a savings account where you can withdraw money whenever you want. Interest will accrue on the account balance. It is widespread for banks to use the word poupança when they offer term deposits, so you need to read the terms and conditions carefully to understand precisely how freely you can withdraw money.
How the interest is calculated
For interest on deposits, 2 rates are used: TANB and TANL.
TANB stands for Taxa Anual Nominal Bruta, which is an annual fixed income rate before tax. This rate doesn't include interest capitalization.
TANL rate (Taxa Anual Nominal Liquida) shows how much you earn minus tax. Tax on income from deposits for a person is 28% (22% in the Azores).
TANL = TANB - 28%
Banks often note straightaway both bets, so you don't have to make additional calculations to understand profitability after paying tax. If you make a deposit, the bank will withhold your tax and send it as intended. The interest you will receive on the deposit will be your net income.
For deposits, which are not multiple an entire year, your income will depend on the number of days of deposit life. According to instructions of the Bank of Portugal, one year is accepted as 360 days.
For example, I invest 5,000 euros for 180 days at a TANB rate of 5% and TANL of 3.6%. How much will I earn?
5000€ (deposit amount) x (180 deposit term/360 days a year ) = 2500€
2500€ x 5% (TANB) = 125€ (pretax income)
2500€ x 3.6% (TANL) = 90€ (income after tax)
How profitable are the bank deposits in Portugal?
Let's say that the example above with 5% TANB is entirely irrelevant for Portugal in the last couple of years and is unlikely to become relevant in 2022. Most of the offers on the market that I saw were no more than 1%.
For example, the conditions of my bank are:
- Deposit for a period of 1 to 91 days: 0.25% (TANB)
- 92 - 182 days: 0.30% (TANB)
- 183 - 365 days: 0.35% (TANB)
- 366 - 1800 days: 0.40% (TANB)
This means that if I deposit 1,000 euros for 366 days, then at the end, I will receive 2.88 euros (4 euros minus 28% tax). Well, you can go crazy from such wealth!
You can find out how things are going with deposits from other banks on the ComparaJá.pt website. Today, the highest deposit rate is 2% per annum from a particular bank, which I have never heard about during 4 years in Portugal.
I will clarify right away that I don't know if this website displays deposits from all banks in Portugal. So perhaps it makes sense for you to independently search for information on the websites of the banks you are interested in and you will find something more profitable and worthy of trust.
It is very convenient to compare deposit options using the deposit income calculator, which the Bank of Portugal offers. You need to enter the deposit amount and interest rate, select the deposit term and tax regime, and indicate whether the interest will be capitalized. As a result, you will receive net income from the deposit (that is, income minus tax). This calculator will show you the most important and informative deposit rate.
TAEL (Taxa de juro anual efetiva líquida) - the annual rate, considering the capitalization of interest and after-tax.
How reliable are the banks?
Is there any risk that the bank will go bankrupt and your deposit will be lost?
There is a fund called Fundo de Garantia de Depósitos, which guarantees the return of deposits up to 100,000 euros per depositor in a particular bank (attention, not on a separate deposit!) if:
- Your bank won't return the deposit amount following the obligations under the agreement, and within 5 working days, the Bank of Portugal will verify that it cannot do this at the moment and in the near future, or
- The Bank of Portugal will publicly announce the decision to revoke the bank's license where the deposit was placed.
A list of banks and other credit institutions covered by the fund's guarantee can be found on this page.
Portuguese alternative to bank deposits
If the interest on bank deposits impressed you as much as me, consider the option with a government loan certificate: Certificado de aforro. The Portuguese Treasury issues it, so the guarantees for the safety of capital are very high.
Savings certificate (Certificado de aforro) is issued in connection with the Conta account de aforro, and each person can have only one such account. The minimum deposit is 100 euros, and the maximum is 250,000 euros. The certificate's validity is 10 years, but you can withdraw the money in whole or in part at any time (except for the first 3 months from the date of receipt of the certificate - for this period, your funds will be frozen).
Interest on this deposit is calculated every trimester, and each time the interest will be calculated according to the formula: three-month Euribor +1%
I won't go into the details of Euribor here. Anyone who wants can study this document to find out for what period the Euribor rate is taken. The most important thing to take into account:
- The interest rate on your certificate will be determined every 3 months and will be between 0 and 3.5% in the first year;
- From the second to the fifth year, the interest rate will be between 0.5 and 4%;
- From the sixth to the tenth year, the rate will be in the range of 1 - 4.5%;
- The interest rate is directly proportional to the three-month Euribor;
- Euribor rate has been steadily rising over the past six months and stands at 1.734% at the time of writing;
- Accrued interest is added to the principal deposit amount every trimester, so the compound interest formula works.
Let's compare it with the bank deposit from my last example, where the TANB interest rate is 0.4% per annum. With a savings certificate, income is not guaranteed, but it can reach 3.5% per annum. And starting from the second year, the minimum guaranteed income on a savings certificate will be higher than on a deposit.
But, unfortunately, this is possible pre-tax income. The 28% tax will be deducted before any interest on the certificate is calculated. So you will only see net income.
How to get a Certificate de aforro
To obtain a certificate, you need to contact the post, CTT. There you will receive an application, related documents, and the deposit amount. Please note that a maximum of 3,000 euros can be accepted in cash. If you pay by card, then there are no restrictions. You will immediately receive a paper certificate containing your account number. You will carry out all further operations (deposit replenishment, full or partial withdrawal of funds) directly with the Treasury without the participation of the post.
So, the documents required to obtain a Certificado de aforro are:
- Identity card (Cartão de cidadão) or residence permit (Autorização de residence);
- Proof of residential address (such as a utility bill or statement called Certidão de domicilio fiscal from the tax service portal);
- Certificate of professional status. For example, an employer's document confirming your salary transfer. You can even show the paper not in its entirety but its "header" (Cabeçalho recibo de vencimento). Individual entrepreneurs may require different documents. In my case, performing the invoice (eRecibo verde) was not enough, so I brought last year's IRS tax declaration and accompanying documents (Nota de Liquidação, Demonstração de liquidação);
- Bank account confirmation (printout from your online bank, where your IBAN is and it is indicated that you are the owner of the account);
- It is also possible to bring a completed application, but this is not required;
- The list of required documents is published on the post website, but postal workers have instructions with a more detailed list, so if you are not a citizen working for hire (the most straightforward situation), be prepared to present additional documents.
You must register on the Aforronet.igcp.pt website with a certificate. Your login password will be emailed to you within 10 business days. After receiving the coveted password, you can carry out all operations with your certificate through this website. At the end of the certificate period or if you withdraw money in whole or in part, it will come to your bank account within 2 business days.
Not being a finance specialist, I cannot recommend how to invest in Portugal. The purpose of this article was to talk about the opportunities to invest money without risk. Naturally, risk-free products imply a low level of income.
Everyone's situation is different, and in my case, I decided not to use banking products. You may have other selection criteria and will be fine with the bank deposit option or choose not to open any deposit.
In any case, I wish you to manage your funds profitably!
