[Livret A] The Livret A rate will fall to 0.5% as of February 1, 2020. A decision taken by the Minister of the Economy because of low interest rates and the level of inflation. What is the impact on the actual return on investment?
The Livret A is a savings account that can be opened at a bank and pays interest at 0.5% (rate in force as of February 1, 2020) tax-free. It is not a current account that can be backed by a cheque book. On the other hand, it is possible to make a bank transfer from a Livret A account to another account.
The ceiling for Livret A passbook savings accounts is EUR 22,950 (the capitalisation of interest may, however, bring the balance of the Livret A passbook account above this limit). The maximum amount that can be put on the Livret A has been doubled under François Hollande. There are two exceptions to the normal Livret A ceiling: associations, which are entitled to pay up to EUR 76,500 on a Livret A, and low-rent housing organisations (HLM), which are not subject to any limit. Until the changeover to the euro in 2002, the ceiling for Livret A passbook savings accounts was set at 100,000 francs, i.e. EUR 15,244.90 at the time.
The Livret A passbook savings account rate is 0.5% as of February 1, 2020, compared with 0.75% as of August 1, 2015. However, care should be taken not to draw hasty conclusions: although the Livret A rate peaked at 8.5% in 1981, inflation then reached 13.4%. Its actual return was therefore negative.
It is possible to withdraw money free of charge from an A-Booklet at any time. In fact, no transactions carried out on the Livret A passbook are invoiced by the bank. The minimum withdrawal amount for a Livret A passbook account is EUR 10 (threshold reduced to EUR 1.5 for a passbook account opened at the Banque Postale). As regards the date on which to withdraw money from an A Savings Account, it is best to wait at least until the 1st or 16th of the current month. In fact, if part of the money is withdrawn on the 30th, 31st or 15th of the month, the interest earned during the past fortnight is lost.
Given the interest calculation method for Livret A passbook savings accounts, it is preferable to make your payments into your Livret A passbook account on the day before the first day of the fortnight that begins. That is, past the 16th of the current month, the 30th or 31st of the month for interest to accrue from the first day of the following month, or before the 16th, 14th or 15th of the current month for interest to accrue from the 16th.
Value date used for interest calculation by date and transaction type
Type of operation
Until the 15th of the current month
From the 16th of the current month
16 of the same month
1st day of the following month
Last day of the past month
15th of the month
Interest on Livret A passbook savings accounts is calculated every two weeks on the 1st and 16th of each month (this is the value date). The value date taken into account for the calculation of the remuneration depends on the date on which the deposit, or withdrawal, is made. It should be noted that deposits generate interest if they are made in full fortnightly intervals. At December 31 of each year, the interest earned is added to the capital and will itself generate interest the following year.
Any individual, major or minor, can open a Livret A account. Since 1 January 2009, all banks have been able to distribute them. Until then, only La Banque Postale and Caisse d’Epargne were authorised to offer them (Crédit Mutuel distributed a Livret Bleu, which has since become a Livret A). Livret A passbook savings accounts are sold to Crédit Agricole and Société Générale Deposits and withdrawals are free, but the minimum amount for cash transactions is set at EUR 10 (except for La Banque Postale where it is only EUR 1.5).
Here are the main banking organisations that offer to open a LivretA:
- La Banque Postale (formerly La Poste)
- Caisse d’Epargne
- Crédit Agricole
- General Company
- BNP Paribas
- Credit Lyonnais
- Mutual Credit
- People’s Bank
- ING Group
- Hello Bank
It is prohibited to combine several A passbooks in the name of the same person, including in several different banks. Since 1 January 2013, banks are required to check when opening an A passbook account whether the person does not already hold one at another institution. On the other hand, it is possible to hold other passbook accounts, in addition to the Livret A, such as a LDD, for example. Fraudsters face a double penalty:
- The payment of interest on sums deposited in the duplicate Passbook and any additional penalties
- A fine equal to 2% of the sums placed in this Livret A.
However, it is possible to combine a Livret A account with other passbook accounts (e.g. a Livret de développement durable or a Livret jeune). Since 1 January 2012, it is no longer possible to transfer an A Savings Account from one bank to another. In the event of a change of bank, one must therefore close one’s Passbook to open another, which can be penalised if it has exceeded the regulatory ceiling of EUR 22 950 thanks to the accumulated interest. It will then be necessary to distribute the surplus generated on other media.
Here are the main features of the Livret A:
- Livret Arate: 0.5% as from February 1, 2020
- Livret Aceiling: €22,950 for individuals and €76,500 for associations that have been increased since its creation.
- Taxation: Exemption from INCOME TAX and social security contributions
- Beneficiaries: Any individual, adult or minor, tax resident or not.
- Number of Livret A passbooks per person: only one
- Minimum amount to open a Livret A : 10 €
- Minimum amount of deposits and withdrawals : €10 in all organizations except the Postal Bank (€1.50)
- Livret A fees : free of charge for opening, closing, deposits and withdrawals.
The Livret A passbook savings account rate can be revised twice a year, on 1 February and 1 August. The method of calculating the Livret A rate has undergone several changes in previous years. The latest dates back to 17 June 2018, the date of publication in the Official Journal of the decree reforming the calculation method on the basis of the project presented by Bercy in mid-April 2018. In practice, to obtain the rate of return on the small passbook savings account, the Banque de France first calculates the half-yearly average of the 12-month moving average of the Consumer Price Index excluding tobacco and the short-term interbank rate (EONIA). It then selects the highest rate between the calculated average and a floor rate of 0.50%. The result is then rounded to the nearest tenth of a point, compared to the quarter before the change in calculation method. The latter comes into force on 1 February 2020, at the end of the two-year freeze on the Livret A passbook savings account rate decided by the executive at the end of 2017.
The 2018 text introduces another new feature: in order to contain a possible sharp rise in Livret A interest rates in 2020, following a sharp rise in interbank rates, for example, the difference between two successive revisions of Livret A rates may not exceed 0.5 points (instead of 1.5 points previously).
Livret A is a tax-free investment. That is to say, the interest it produces is exempt from INCOME TAX and social security contributions. This exemption was not called into question with the entry into force of the flat tax on 1 January 2018. Livret A is therefore part of the income that does not have to appear on the TAX RETURN due each year in the spring.
As Livret A passbook savings accounts are not taxed, their net yield is equal to the gross rate (0.5% as of February 1, 2020). If inflation is deducted, however, the real return is less than this figure. However, thanks to the current calculation method, it can never be negative.