While banks have spent much of the past few months competing primarily on savings account rates, MeDirect is now making a strong push into the term-deposit market.
The online bank is offering a net annualized rate of 2.24% on a 12-month term deposit, putting its offer ahead of several comparable products currently available from competitors.
There is, however, an important catch: the offer is temporary.
MeDirect offers up to 2.51% net for six months
MeDirect has also announced an attractive new rate for its six-month term deposit.
The product offers a gross annualized return of 3.58%, equivalent to a 2.51% net annualized return after the deduction of Belgian withholding tax.
Because the rate is annualized, savers should remember that a six-month deposit does not generate the full annual return.
For example, someone investing €1,000 would receive approximately €1,012.55 after six months, assuming the advertised rate and applicable tax remain unchanged.
The 12-month option
For its 12-month term deposit, MeDirect Belgium is advertising a gross annualized rate of 3.20%, corresponding to a 2.24% net return after withholding tax.
With an initial investment of €1,000, the saver would therefore receive approximately €1,022.40 after one year.
These rates represent a significant improvement compared with MeDirect's previous rates for the same maturities, which stood at around 1.75%.
MeDirect moves ahead of some competitors
With these new rates, MeDirect is positioning itself ahead of comparable offers from several competitors.
For comparison, Santander Consumer Bank offers a net rate of around 1.715% for six months and 1.855% for 12 months on its corresponding term-deposit products.
The difference makes MeDirect's temporary promotion particularly noteworthy for savers who are prepared to lock away their money for a defined period.
A temporary promotional offer
Savers should nevertheless pay close attention to the conditions.
MeDirect states that the promotional offer is temporary and reserves the right to terminate it at any time. The campaign is primarily intended to attract new customers.
There are also limits on the amount that can be deposited.
The maximum deposit is €100,000, while the minimum investment is €100.
Interest rates and the European economic environment
The new rates come against a changing European interest-rate backdrop.
Higher inflation in the euro area has increased expectations that the European Central Bank (ECB) could raise its policy rates again in September.
Changes in central-bank policy can have a direct impact on the rates offered by banks on savings accounts and term deposits.
For savers, this means that today's most attractive offer may not necessarily remain available for long.
Is MeDirect's offer attractive?
For savers who are comfortable locking up their money for six or 12 months, MeDirect's new term deposits appear particularly competitive.
The advertised rates are higher than several competing products and can also exceed the returns available from some of the highest-paying savings accounts.
However, the decision should not be based solely on the headline interest rate.
Don't forget about the loyalty bonus
One important consideration concerns savers who are thinking about transferring money from an existing savings account into a MeDirect term deposit.
Moving money out of a savings account can mean losing the loyalty bonus that is currently being accumulated.
For this reason, it may be preferable to use money from a savings account where the loyalty bonus is relatively low, or from an account where a new loyalty-bonus accumulation period has only recently begun.
In other words, the advertised term-deposit rate should be compared with the total return you would otherwise receive from keeping the money in your existing savings account.
The bottom line
MeDirect's new offer is clearly competitive, particularly for savers looking for a predictable return over a relatively short period.
The 2.51% net annualized rate for six months and 2.24% net rate for 12 months stand out in the current market.
But the promotion is temporary, deposits are capped at €100,000, and withdrawing money from a savings account could have consequences for an accumulated loyalty bonus.
For savers willing to lock up their money, MeDirect's term deposits are therefore worth considering — but the effective return should always be compared with the opportunity cost of giving up flexibility and any loyalty bonus already in progress.
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