Term account: definition and taxation

What is a term account?

Term booklet: definition

The term account (CAT) is a bank savings product, which is part of the family of term deposit accounts. It is a financial investment, most often short or medium term. In practice, a term account is comparable to a loan that a saver grants to a bank. The interest rate of this loan (paid to the investor) is known in advance.

A blocked account for savings

A term account (CAT) is a bank savings product in which the saver places a sum of money for a fixed period, in exchange for an interest rate fixed in advance. The money invested is blocked for the entire agreed period. This type of investment is used to secure your savings while guaranteeing a certain remuneration.

DAT (Term Deposit) vs CAT (Term Account)

The difference between a term account (CAT) and a term deposit (DAT) is mainly a question of terminology and geographical context.

The CAT is mainly used in France and in certain European countries. The term “account” refers to the idea of ​​a specific bank account opened to store these savings, separate from the client’s other accounts.

DAT is a term more common in Anglo-Saxon countries or in generic language. It represents an investment for a given period in exchange for interest.

What are the main types of term accounts?

CAT (term account) at fixed rate

A fixed rate term account guarantees a fixed interest rate known upon subscription. The remuneration remains constant throughout the duration of the investment, regardless of changes in market rates. It is aimed at savers with clear visibility of their liquidity needs at the end of the period and those who favor a secure and stable approach.

CAT (term account) at progressive rate

In order to encourage investors to lock up their capital over the medium term, banks are planning a staggered increase in remuneration. In this case, it gradually increases over time. The rate is generally defined in time increments.

This type of CAT is aimed at savers who can afford to lock up their funds over a long period without withdrawals. In return, it offers an attractive return. The longer the funds remain tied up, the higher the overall return will be.

Variable rate CAT

In this type of contract, the remuneration depends on the evolution of interest rates on the market. The rate is indexed to a reference index, such as Euribor or another interbank rate. This CAT is suitable for savers willing to accept uncertainty over returns in exchange for higher earning potential.

CAT at adjustable rate

The adjustable rate term account offers a certain flexibility in setting the interest rate, depending on market conditions. Unlike the fixed rate CAT, the rate of the adjustable rate CAT can be adjusted periodically by the bank. It is suitable for savers who accept a certain uncertainty and have funds that can be fixed in the long or medium term.

What are the advantages of a term account?

A secure investment

The main advantage of CAT is that it is a secure placement. When the account is opened, the saver makes a single payment. The contract concluded with the bank guarantees it to recover this initial capital, increased by the interest acquired on a specific date. If the investor wants to invest an additional sum, he is forced to open another CAT.

Low management fees

The management fees attached to the account are low, even insignificant, even if the bank confiscates a particular performance in terms of its remuneration. In addition, unlike certain investments, the interest paid is net of bank fees.

Potential tax benefit

In certain contexts, the interest received may benefit from advantageous tax regimes, such as the application of a single flat tax (PFU or flat tax in France). However, it is advisable to check the tax conditions in force at the time of subscription.

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What are the disadvantages of a term account?

Low yield

The main disadvantage of a term account is that it yields little. The return is indexed to a market rate or a benchmark index. In most cases, this is the Euribor or the rate of Assimilable Treasury Obligations (OAT).

Inflexible savings

Another disadvantage is that the term account is a rigid formula. Funding it with subsequent payments is impossible and any withdrawal automatically results in the account being closed.

How many term accounts can you have?

No limit for the number of CATs

In theory, there is no legal limit to the number of Term Accounts (CAT) you can open. You have the possibility to open as many as you wish, provided you respect the conditions imposed by each banking establishment and have the necessary funds. You can open CATs in several different banks.

Strategies to increase CAT

If you have a large sum, you can distribute it over several CATs of different amounts, with varying maturities, to maximize availability and profitability with different durations and terms. This is the principle of capital fragmentation.

For example, you can open a fixed rate CAT for a secure investment, a progressive rate CAT for a longer horizon, and a variable rate CAT to benefit from potential market increases.

How to open a term account?

Choose your bank or financial institution

Before opening a CAT, compare the rates and conditions of each establishment to maximize your return, because the majority of CAT rules fall under freedom of contract. Online comparison sites or a discussion with an advisor can help you.

You can open a CAT in your usual bank, which is practical if you already have a current account or another savings product, or in another bank to benefit from a more attractive rate or specific conditions.

Sign the futures contract

When opening the CAT and signing the subscription contract, the bank provides an information document, which specifies the amount of the deposit (minimum and maximum) as well as the duration of the investment and its maturity date (a duration of one month up to five years), the rate of remuneration, the penalties in the event of early exit, as well as the conditions for extension.

Make the down payment

To finalize the opening of a new term account, you will then need to deposit the amount provided in the term account. Some establishments set a minimum payment (for example 1,000 euros) to place cash on a CAT. Once the deposit is made, the money will be blocked until the maturity date.

What is the current interest rate on the term account?

Calculation of the remuneration of a term account

Most often, the remuneration of a CAT is calculated on the basis of simple interest (no “snowball” effect). This interest begins to accrue on the first day of the investment and stops one day before the account maturity date. If the account is renewed, the simple interest acquired each month is capitalized and itself becomes productive of compound interest.

Average rates in 2024

It is important to note that the rates offered vary depending on the banking establishments, the duration of the investment and the amount invested. Some term accounts offer progressive rates, increasing with the length of time the funds are locked up.

In 2024, CAT interest rates in France fluctuated between 3 and 4%, due to the increase in key rates from the European Central Bank (ECB), but, from the second half of the year, they began to stagnate around 3%, or even a little less.

Get the best performance

To obtain the best return, it is recommended to compare the offers of different banks and to take into account the specific conditions of each term account, in particular the penalties in the event of early withdrawal and the taxation applicable to the interest received.

What are the penalties for early withdrawals?

The term account is a blocked account. Early exits are possible, but punishable. The customer is required to inform the bank at least 30 days before the withdrawal. A penalty on the remuneration is applied according to a percentage defined in advance, around 0.5%, depending on the date and the amount withdrawn, as well as possible termination fees.

What taxation on a term account?

Taxable interest

Fiscally, the interest on term accounts is subject to the single flat-rate levy at 30% or to income tax if this solution is more advantageous for the taxpayer. A mandatory deposit at the rate of 12.8% is deducted at source. It is then deducted from the amount of tax payable for the payment of interest.

Income tax return

CAT interest is pre-populated in your income tax return in the income from movable capital category, using the information provided by your bank. Check the amounts entered in box 2 TR. If you opt for the progressive scale, the non-dischargeable flat-rate withholding already paid is mentioned in box 2CK and will be deducted from the tax due.

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