The announcement had been eagerly awaited for several weeks. As of February 1, the interest rate on the Livret A, the most popular savings product in France, will double from the current 0.5% to 1%. Taking inflation into account, a strict application of the calculation formula would have resulted in a rate of 0.8%. The government has decided to make an additional gesture in favor of French purchasing power.
An increase higher than the expected minimum increase in the Livret A passbook rate
For the first time since 2011, the interest rate on the Livret A passbook savings account is set to rise. As announced by Economy and Finance Minister Bruno Le Maire on Friday, January 14, the rate on this regulated savings product will double from 0.5%, the lowest rate, to 1% as of February 1.
The interest rate on the Livret d'épargne populaire savings account will more than double: currently set at 1%, it will be raised to 2.2%.
Rates on French regulated savings passbooks will rise from February 1:
- Bruno Le Maire (@BrunoLeMaire) January 14, 2022
➖ The livret d'épargne populaire rate will rise from 1 to 2.2%.
➖ Livret A and Livret de développement durable et solidaire rates will double from 0.5% to 1% pic.twitter.com/ovn6txYkx0
In any case, the government was obliged to increase the Livret A rate. The rate on this popular French savings account is revised every 6 months, using a calculation method that takes inflation and the interbank rate into account.
The rise in inflation over the past few months should have led, mathematically, to an increase in the Livret A rate to 0.8%.
A boost to purchasing power
But in the midst of an election period, when the French are very concerned about their purchasing power, the government has decided to give savers a helping hand. From February 1, the Livret A rate will be 1%, i.e. 0.2 points higher than the calculation formula required.
The 1% increase in the Livret A interest rate comes on top of other measures introduced by the government to boost purchasing power, such as :
- inflation allowance of 100 euros,
- an additional energy voucher for low-income households,
- the tariff shield to limit the rise in gas and electricity prices.
The Banque de France, which is responsible for recommending the Livret A rate every 6 months, had also come out in favor of a 1% increase, to " better ensure that Livret A holders receive a fair return ".
However, despite the revision of the Livret A rate, inflation has risen to such an extent that the real return remains negative, at -1. 8% based on December inflation of 2.8% according to Insee figures.
Despite this reality, the government's gesture is highly symbolic, just a few months away from the presidential elections. Although sight deposits are ahead of the Livret A, the latter is still one of the top three investments preferred by the French, along with the Livret de développement durable et solidaire.
More than 4 out of 5 French people hold a Livret A passbook account, i.e. 54.9 million people with 343 billion euros in outstandings. These figures are making the banks dizzy, as they are responsible for paying part of the Livret A interest rate. Raising the rate to 1% could cost them up to 920 million euros.