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Livret A Savings Rate Rises to 4%

Friday 01 August 2008

The popular tax-free savings account Livret A is a ‘must’ for anyone who owns property in France, as the rate rises to 4%.

The rate passes from 3.5% to 4% with effect from 1st August, the highest it has been for 12 years, a reflection on the level of inflation in France to which the rate is linked.

The rate would have been about half a per cent higher at 4.5% but for changes made last February in the way the rate is calculated. As funds from the Livret A go towards funding the construction of new low-cost homes, the Government took the view that a high rate of interest on the account would impede this objective.

This time around, however, they really had no choice, as to have changed the rules of the game twice in one year to the detriment of savers would have been politically too risky, at a time the Government are suffering in the polls.

Livret A is the savings account of choice for the French, with around 45 million accounts in existence. All adults are entitled to hold an account, into which you can deposit a maximum of €15,300 per person, excluding interest.

The interest is completely free of tax and the social welfare levy (CSG/CRDS), and the funds are instant access. No residence qualification is required to hold a Livret A. Nevertheless, non-residents are required to declare the interest earned on the account to their own tax authority.

Whilst the account is currently only available through La Poste, Crédit Mutuel also offer the Livret Bleu, which is available on the same terms as the Livret A, although you can only hold one or the other.

Such is the popularity of the Livret A that it would appear that many millions of French have flouted the law by holding more than one account. The Government recently discovered that the 45 million accounts in existence were actually held by only 37 million people!

Holding more than one Livret A is strictly forbidden by the law, and so new measures are being introduced to clamp down on multiple account holders. In future, banks will be required to check with a central register to determine if someone already holds an account.

With effect from 1 January 2009, the monopoly of La Poste and Crédit Mutuel to offer these savings accounts will cease, as the accounts will be available from all banks in France.

This has arisen out of years of pressure from the European Commission on France, who have objected to the monopoly held by the two current distributors.

There remains concern by the French Government that opening up Livret A to all banks will reduce the amount actually deposited in the accounts, as the banks seek to offer similar products to their savers. However, given the commission the Government will pay the banks for administering the accounts, it is questionable whether it would be in their interests to do so.

As well as an increase in the Livret A, there are also increases in other savings accounts, which take place co-terminously with any changes in the Livret A.

Thus, the rate of the even more generous Livret d’Epargne Populaire (LEP) goes up from 4.25% to 4.50%, again with interest free of tax and the social welfare levy. However, the account is only available to those who pay no income tax in France, and has a even lower maximum deposit limit (excluding interest) of €7700 per person.

Alternatively, you may want to put money on deposit in a Livret de développement durable (LDD) where there is no means testing, and in which you can hold €6000 per person, with interest free of tax and the social welfare levy.

Less fiscally attractive, but also worth considering, are the various 'term' deposit savings accounts, with interest rates up to around 4.5%. However, these accounts are subject to tax and 11% social welfare levy.

You can read more about French savings accounts in our Guide to Banking in France.

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