That Moment When A 20% Tax Refund On Guaranteed Savings Happens

Being in a relationship with a banker certainly has its perks! 😋 It turns out that there are certain guaranteed investments in Latvia that qualify for an income tax refund, and the tax refund itself offers some ROI even in the worst case scenario. Read my experience below!

DISCLAIMER: I’m not a financial advisor (yet! 🔥) and the following is not a substitute for independent professional advice. Readers should obtain any appropriate professional advice relevant to your particular circumstances.

Let’s get down to investing business!

Savings for a child’s future is a simple investment contract where you’re contributing at least €25/month for at least 5 years (at least 10 years starting from January 2018 ❗❗❗). I have a 13-year-old brother that I chose as the contract subject, and after 5 years I will take the accrued funds out and decide whether he deserves the funds or not! 🤔

Investment Contract Conditions:

  • Minimum term is 5 years (10 years starting from January 2018)
  • Minimum contribution: €25/month (maximum contribution restrictions apply)
  • Investor pays income tax in Latvia

The bank invests my contributions into financial instruments that might, or might not, increase in value over the 5 year period. Sounds scary? Well, I’m arguing that the tax refund and a guaranteed minimum amount at the end of the contract make up a decent ROI for a low-risk instrument even in the worst-case scenario. Let’s find out for sure!

Investment Contract Assumptions:

  • Contract term: 5 years
  • Contribution: €25/month (€1500 over the 5 year period)
  • Tax Refund: 20%/year (Progressive income tax of 20% as for the majority of Latvians starting from 2018)
1) Worst-Case Scenario: Bank’s investments generate losses over the period.

+ €1’328 Guaranteed amount at the end of 5-year contract after fees and taxes (Swedbank calculator)
+ €300 Tax Refunds (20%/year, paid out yearly after yearly contributions)
= €1’628 Total Returns

€128 Net Profit or 8.53% over 5 years (or 1.65% Compound Annual ROI). Let’s stick to compound annual interest (mmm, my favorite!) and just ROI from now on.

1.65% ROI is the lowest you can get in the worst-case scenario when all bank’s investments of your contributions generate losses over the 5 year period.

The investments don’t necessarily need to bring losses, so let’s take a look at the positive scenario as well.


2) Positive Scenario: Bank’s investments of my contributions generate 7% on stocks, 4% on 5-7 year bonds, and 2% on short-term bonds.

+ €1’459 Estimated amount at the end of 5-year contract after fees and taxes (Swedbank calculator)
+ €300 Tax Refunds (20%/year, paid out yearly after yearly contributions)
= €1’759 Total Returns

€259 Net Profit or 17.27% over 5 years (or 3.24% Compound Annual ROI).

Does 1.65% – 3.24% compound annual ROI sound low for a super low risk guaranteed investment? Think again because there are indirect benefits!

  1. Every year you’re getting a 20% tax refund on your previous’ year contributions back, in cash. Yay for cash flow!
  2. As of December 2017, you can make a deposit of €1500 at a bank for 5 years and get a 0.88% (Citadele) or even 0.08% (Swedbank) annual compound ROI. 1.65%-3.24% doesn’t look too low anymore, does it?
  3. In contrary to the normal bank deposits, you’re contributing just a little sum of money every month instead of freezing the whole investment for 5 (or 10) years upfront, and if you’d like, you can change the monthly contribution even every month.
  4. If a catastrophe happens to you and you cannot pay the monthly contributions anymore, the insurance kicks in and the insurance company pays the contributions on your behalf. The contract subject (in my contract, my brother) will receive the full accrued guaranteed contribution at the end of the contract.

Example: The investor dies after 1 year. Contributions until death: €300. Insurance then kicks in and pays the monthly contribution until the maturity of the contract (4 years remaining and €1’250 in this case), and then the contract subject (my brother) gets the accrued funds.

What do you think about the instrument and the returns? Do you have any questions or comments? Leave them below and I’ll reply! 🤘

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6 Replies to “That Moment When A 20% Tax Refund On Guaranteed Savings Happens”

  1. Yes it does sound super low. Only a banker would suggest to participate in these kind of “investements”.

  2. I have such contract for 2 years now with Luminor, waiting for 2020 to calculate my ROI at the end. Hope the legislation will not change until- concerning tax refunds, because this is most vulnerable part I guess.

    1. Thanks for your comment!

      Starting from January 2018 your income tax refund will depend on your annual salary (yay for progressive income tax!) and will vary between 20% (minimum income tax) and 31.4% (maximum income tax for people earning €55K or more per year).

      The more you earn, the more tax refund you’ll get back from investing in the instrument (upper limit restrictions see here:


        I consulted my peers, and it turns out that even if you’re paying a higher income tax, you’ll still get 20% income tax refunds!!!!!


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