Hungarian government bond failed as an investment

The government’s initiative to attract additional funds into government bonds faced resistance as a significant portion of Hungarians turned to alternative tax-free investment avenues. While there’s a growing trend towards saving for 3 to 5 years, there’s a noticeable decline in retirement savings.

Unpopular government bond

Last year witnessed a surge in long-term investment accounts, potentially leading to zero tax obligations on returns. By the end of 2023, approximately 2.1 million customers held securities accounts with various investment service providers, while the number of customers with the Hungarian State Treasury had reached 800,000. This trend, as reported by economx.hu, indicates that despite efforts by the Orbán Government to promote investment in government bonds through measures such as the introduction of the social contribution tax and compelling banks to direct investors to the Treasury, many individuals opted for alternative tax-free investments, reflecting hesitancy towards government bonds.

Hungarians’ investment preferences

In 2023, the number of long-term investment accounts surged by over 40,000, contrasting with an 860 decrease in pension savings accounts. Data from the National Bank of Hungary suggests a preference among Hungarians for medium-term investments over long-term planning. These investment avenues offer tax advantages and have gained traction since the social contribution tax’s introduction in July 2022, which now includes a 13% liability on interest and other investment income due to a 15% interest tax. This tax increase has raised the tax payable from HUF 15,000 (EUR 38,5) to HUF 28,000 (EUR 72) for an earned income of HUF 100,000 (EUR 256). Nevertheless, both permanent investment accounts and retirement savings accounts remain exempt. The data reveals a significant increase in the number of permanent investment accounts particularly notable in the last quarter of the year.

Latest figures

While the first quarter saw only 4,598 new accounts, subsequent quarters witnessed increases exceeding 10,000 and 14,657, respectively. The final quarter set a record not only in terms of account numbers but also in the volume of securities holdings, which surged by HUF 358.4 billion (EUR 9,212,309,733) compared to the previous quarter’s end. Despite an initial decline at the beginning of the year, the unique construction of these accounts mitigates exceptions. Currently, there are a total of 299,598 permanent investment accounts, collectively valued at HUF 4,351 billion (EUR 11,183,805,705), alongside 90,620 pension savings accounts, amounting to HUF 486.5 billion (EUR 12,504,990,751). The average value of permanent investment accounts stands at approximately HUF 14.5 million (EUR 37,000), while Hungarians hold special pension accounts with an average value of about HUF 5.4 million (EUR 13,800).