How Much Do Risk-Free Investments Actually Earn?
Livret A, LEP... While there are many regulated savings accounts in France, it is important to factor in inflation when assessing their true net return. In this regard, some savings products are proving to be more attractive than others in 2024.
According to the Banque de France, inflation is expected to average 2.5% in 2024. As a result, some regulated savings accounts will yield returns higher than inflation, rewarding the many French people who have increased the total amount of regulated savings from 874 billion euros in 2022 to 935 billion euros by the end of 2023. Here is a brief overview of the real returns on these investments, according to Capital.
A Big Winner
First and foremost is the famous Livret A. With an interest rate frozen at 3% since August 1, 2023—just like that of the Livret de développement durable et solidaire (LDDS)—this savings product has once again become profitable as of February 2024. In fact, it was this month that inflation fell below the 3% mark for the first time, settling at 2.9%.
With year-over-year inflation estimated by INSEE at 2.3% in July, the Livret A savings account thus offers a net return of 0.7% to its 57 million account holders. With an average balance of 7,000 euros and annual inflation of 2.5% in 2024, it is expected to yield a net return of 35 euros per year. Those who have reached its maximum deposit limit of 22,950 euros will earn 114.75 euros over the course of the year.
However, these figures fall far short of those of the Livret d’épargne populaire (LEP), the clear winner of 2024. With a rate of 5% in July—which was lowered to 4% on Thursday, August 1—it is expected to yield a real return of 2.1% for the year, twice as much as last year. LEP account holders who have reached the €10,000 limit should therefore receive €210 net.
Two Big Losers
Conversely, two savings products will post negative returns for the entire year of 2024. This is the case for the well-known home savings plan (PEL) and the home savings account (CEL). Their interest rates were set at 2.25% and 2%, respectively, as of January 1, 2024—which is lower than the inflation rate measured in July and lower than the estimated rate for the entire year.
Simply put, investing in these types of accounts amounts to losing money in 2024. This is especially true since both of these products are subject to the 30% flat-rate withholding tax (PFU), which reduces their net tax rate to 1.58% for the PEL and 1.4% for the CEL during this period.
Although some regulated savings accounts offer attractive returns in 2024, it is crucial to factor in inflation when assessing their true net return. The Livret A and the LEP stand out as winning options, while the PEL and the CEL show negative returns.
