What return to expect on the Livret A account from February 2022? (Credits: Adobe Stock)
The livret A is one of the favorite investments of the French. It is indeed widely acclaimed by the French who have nearly 55 million according to the latest figures provided by the Caisse des Dépôts et Consignation. However, with a remuneration at the floor rate of 0.5%, he is struggling to convince. This is how in October 2021, it recorded its largest outflow for 7 years. The recent announcement of the increase in the rate of remuneration of the booklet A will make this investment its attractiveness? Should you consider placing your savings in the Livret A account again? All our explanations.
A very measured increase
The Minister of Economy and Finance announced in December an upcoming increase in the Livret A. The famous French savings account will increase in February 2022 to post a rate of return of around 0.8%, perhaps slightly more. Currently at the floor rate of 0.5% since February 2020, the livret A should therefore experience an increase in its remuneration of around 3 points. This increase in the rate of remuneration of the booklet A is therefore very measured, even if it is widely publicized and commented on. It must be said that this will be the first time in eleven years that the rate of the booklet A increases.
Anemic performance
Despite this strong political signal, the economic reality is quite different. The anticipated 0.8% of the livret A does not make it possible to cancel out the effects of inflation. It should be recalled that in November 2021, the consumer price index increased by 2.8% over one year. The rate of remuneration of the booklet A after increase is therefore still well below the level of inflation. Thus, this investment, once adjusted for inflation, shows a negative return. Admittedly, the new rate will attenuate the effects of inflation (very moderately) but it will absolutely not be able to cancel them.
Read also: Booklet A: advantages and instructions for use
An investment to keep for precautionary savings and short-term projects
Under these conditions, it seems obvious to us to only place in your savings account the sums intended for the financing of (very) short-term projects (of the order of 3 to 6 months). For projects with a slightly more distant investment horizon, it might be wiser most often to opt for the euro life insurance fund, also guaranteed in capital but taxed (30% or scale of the ‘IR + 17.2% of PS for contracts less than 8 years old or 24.7% for contracts over 8 years old provided that the outstanding amount of all contracts combined does not exceed 150,000 euros for one person alone and 300,000 euros for a couple), unlike the livret A whose interest is exempt from capital gains tax and social security contributions. Indeed, the euro life insurance fund posted an average performance of 1.3% in 2020, a figure above the yield of the Livret A.
Remember that the Livret A is also the preferred envelope (with the LDDS) to keep your precautionary savings intended to pay for all unforeseen expenses and which, therefore, requires immediate availability of funds.