On February 1st, the Livret A interest rate will decrease to 2.5%, following a stable 3% in 2024. This shift prompts savers to consider alternatives such as the Popular Savings Account (LEP) with a 4% rate, expected to drop to 3%. Life insurance funds and term accounts also present competitive options, despite some tax implications. Additionally, promotional rates from bank savings accounts may offer short-term benefits, although long-term strategies remain crucial for maximizing returns.
The Upcoming Changes to Livret A Rates
On February 1st, the Livret A interest rate is set to decrease to 2.5%. Throughout 2024, this popular savings account maintained a stable rate of 3%, but with a looming adjustment, many savers are curious about alternative secure investments that may provide better returns in 2025. With inflation on a downward trend, the expected reduction in Livret A rates raises questions about other viable options for savers.
As a result, individuals could potentially lose as much as 150 euros in interest in 2025 due to the anticipated decline in the Livret A rate.
Exploring the Popular Savings Account (LEP)
The Popular Savings Account (LEP) stands out as a highly attractive alternative, likely to offer returns surpassing those of the Livret A. Like the Livret A, the LEP is exempt from taxes and social contributions, but it has a lower deposit ceiling of 10,000 euros compared to the Livret A’s 22,950 euros. Currently, the LEP rate is at 4%, which is expected to drop to 3% as of February 1st, unless government action is taken. Even with this reduction, the LEP will continue to provide a better return than the Livret A.
However, not everyone qualifies for an LEP, as eligibility is restricted to modest-income households.
Life Insurance as a Competitive Option
Life insurance has shown a notable resurgence, with euro fund returns averaging 2.6% in 2023. Predictions indicate a slight decline to 2.5% for 2024, although not all providers have published their rates yet. For example, the mutual group Garance reported a gross performance of 3.50% for the past year, which exceeds the Livret A rate. Ampli Mutuelle has also announced a competitive return of 3.75%, but this option is limited to self-employed individuals. After deducting social contributions of 17.2%, the net returns turn out to be 2.9% and 3.11%, still higher than the future Livret A rate.
Economist Philippe Crevel notes that the decline in Livret A and LDDS returns may drive savers toward euro funds in life insurance, expected to stabilize around 2.6%.
It’s also essential to consider the tax implications of life insurance withdrawals, which vary based on the contract’s age and payment dates.
Term Accounts: A Medium-Term Strategy
Term accounts, which are taxed at 30%, offer fixed returns based on the holding period, ranging from 3 months to 5 years. While rates have recently dipped, term accounts previously yielded impressive returns. As of October 2023, the average return for term accounts of 2 years or less was 3.31% gross, translating to a net return of 2.48% after the flat tax. Currently, rates hover around 2.5% gross or 1.75% net, making them less appealing over a one-year horizon compared to the Livret A.
However, in the medium term, these accounts could prove advantageous. For instance, Ramify’s 60-month term account offers a fixed gross rate of 2.60% (1.82% net), which could outpace the average Livret A return. For a saver investing 22,950 euros in this account throughout 2025, the net interest would total approximately 417.69 euros, compared to an estimated 534.73 euros from the Livret A if its rate decreases to 2%.
It’s crucial to remember that to enjoy the advertised rate, funds must remain untouched until the contract matures to avoid penalties.
Bank Savings Accounts with Enhanced Rates
While the returns on bank savings accounts are also dropping, some promotional rates can still outperform the Livret A in the short term. For instance, Distingo Bank is currently offering a rate of 4% for the first three months of a new account opened by February 27th. A deposit of 22,950 euros would yield a better return than the Livret A during this promotional period, even after applying the 30% tax. After the promotional period, the rate falls to 2.25%, leading to a gross average rate of 2.69% (1.89% net) over the year. However, it’s important to note that this base rate may fluctuate, unlike the more stable Livret A rate.
In conclusion, while boosted rates can make bank savings accounts appealing for short-term savings, careful comparisons and considerations of long-term strategies are essential for maximizing returns.