As the Livret A interest rate is set to drop from 3% to 2.5%, French savers are exploring alternative secure investment options. Among these are the popular savings account (LEP) with a 4% yield, bank savings accounts offering promotional rates, real estate investment companies (SCPI) with a 4.6% average return, and life insurance policies showing improved yields. Each option presents varying tax implications, risk levels, and accessibility features, providing diverse choices for savers.
The Future of Livret A: Alternatives to Consider
The Livret A, currently offering a 3% interest rate, is expected to see a decrease to 2.5% starting February 1st. This anticipated change raises the question: what other secure investment options are available for French savers? Here, we explore several alternatives that could potentially serve as replacements for the Livret A.
- Taxation: Unlike the Livret A, which guarantees a net yield of 3% free from taxes, some alternatives may involve taxation on earnings.
- Risk: The Livret A is a low-risk investment, providing peace of mind with no risk of losing capital.
- Accessibility: One of the key advantages of the Livret A is the ability to withdraw funds at any time without penalties.
1. Popular Savings Account (LEP) – 4% Yield
Leading the pack of secure investment products is the popular savings account (LEP). With an attractive rate of 4%, it is currently one of the best alternatives, although this rate may also decrease to 3% on February 1st.
Taxation: The LEP is completely tax-exempt, meaning savers can enjoy all the generated capital gains.
Risk: Similar to the Livret A, the LEP carries no risk of capital loss, making it a safe choice for savers.
Accessibility: Funds in the LEP account are easily accessible at any time, with a straightforward transfer process to a current account.
2. Bank Savings Accounts with Enhanced Rates
Bank savings accounts present another viable option. Many banks offer promotional rates ranging from 3% to 4% for the initial months after account opening. For instance, Stellantis Bank’s Distingo account has a gross yield of 2.25% and a promotional rate of 4% for the first 3 months. Other options include Zesto from Renault Bank with a rate of 2.75% and Raisin’s Morrow Bank account, boasting a gross yield of 2.91%.
Taxation: It’s important to note that bank savings accounts are subject to taxes and social contributions. The effective yield should be calculated after accounting for a flat tax rate of 30%.
Risk: Like the Livret A, bank savings accounts are not considered high-risk investments.
Accessibility: Capital is available at any time, facilitating easy transfers.
3. The Allure of SCPI Investments
Investing in real estate investment companies (SCPI) is an attractive choice, particularly when done through life insurance or retirement savings plans (PER). According to the French Association of Real Estate Investment Companies (Aspim), SCPIs had an average performance of 4.6% in 2023.
Taxation: Directly held SCPI interests are taxable as property income, subject to your marginal tax bracket. However, if held through life insurance or PER, taxes are deferred unless withdrawals are made.
Risk: While SCPIs are generally considered moderate-risk investments, they are not without risks, especially in a fluctuating real estate market.
Accessibility: The availability of funds from SCPIs can vary. Direct investments may require time to find a buyer, while funds held within life insurance or PER can be accessed more quickly.
4. Life Insurance Policies
The yield of euro funds within life insurance has rebounded significantly, averaging 2.6% in 2023, up from 1.90% in 2022. However, predictions indicate a potential drop to 2.5% in 2024. Notably, the mutual group Garance has reported a gross performance of 3.50% (or 2.90% after social contributions), surpassing the anticipated Livret A rate.