Popular Savings Scheme to be Expanded
Tuesday 15 January 2008
Under French law only two banks are able to offer the scheme - La Banque Postale and Caisse d’Epargne – but the European Commission has now forced the French Government to allow all French banks to offer the scheme.
The Commission has acted following complaints by French bank Credit Agricole and the internet bank 'ING' , who considered that the monopoly held by the existing distributors was tantamount to unfair competition.
The French Government has resisted the change, because funds deposited in the Livret A go towards funding social housing schemes throughout France.
The Government have been concerned that, should the product be more widely available, it would lead to a reduction in the level of deposits, as there are fears the banks would use the scheme merely to attract new savers, and then try to persuade them to take another product (shares, life insurance) that have no social vocation.
There is also concern that the banks would be unwilling to participate in the funding of social housing schemes.
As a result, under the new proposals, banks will be required to deposit at least two thirds of all deposits with the public bank Caisse des dépôts et consignations (CDC), who will continue to act as the banker for the housing schemes.
However, with the change comes the possibility that the mechanism for determining the rate of interest on the scheme may also be changed, to the disadvantage of savers.
This change may occur because there is concern in Government circles that the rate on this instant savings account is approaching the rates available on longer term savings, and that a higher rate will increase the cost of social housing schemes.
The rate of Livret A is related to the rate of inflation and the Euro inter bank rate. As both have risen substantially in 2007, so the mechanism provides that the rate of Livret should rise this year, to around 4%. A decision on the rate of Livret A for 2008 is imminent. It currently offers a rate of interest of 3.0%.
Each adult member of a household is allowed to hold a Livret A, but the maximum deposit is €15,300, excluding interest.
The great attraction of the scheme is that it is completely free of tax and social security contributions.
You can read more about Livret A, and other French tax savings schemes in our Guide to Banking in France