INVESTORS are being warned to be careful as banks begin to hard-sell their own taxed savings accounts after the government introduced more competition by raising the ceiling for the tax-free Livret A.
The Institut National de la Consommation says offers of accounts at up to 5.25% interest are now being found for banks’ own (taxed) livret accounts - but only for a short period.
The rates may drop significantly after a few months.
After this they are often below the current 2.25% of the Livret A (which is occasionally modified according to a formula linked to consumer prices).
AXA Banque, for example, is advertising one at 5% - however the small print shows this to be 3% for the first three months, turning into 5% if the money invested is kept for another three months; then just 1.15% after that (or 1.5% if you have more than €15,300 in the account). ING Direct offers 4% for five months, then 1.6%.
Another drawback is that the interest rates do not account for the money you will lose on the interest being taxed - which rose from 19% to 24% tax for taxed-at-source investments (using the prélèvement forfaitaire system) this year as part of an austerity drive (if you do not want tax at source you need to specify that you want instead to declare the interest as part of your income tax return).
On top of this there is 15.5% (up from 13.5% this summer) of social contributions - meaning that to make as much as the tax (and social contributions)-free Livret A (2.25%), the account would need to offer a rate of 3.72% long-term.
One advantage of the banks’ livrets is, however, that they often have high ceilings for how much can be invested in them (€30,000 for AXA’s for example). As for the Livret A ceiling, this has just been increased by 25%, to €19,125. The similar LDD has had its doubled to €12,000.
The government has said a further 25% rise to the Livret A one will come this year, and has promised, by an unspecified date, to double it from the original €15,300, as President Hollande stated he would during his presidential election campaign.
The Livret A was created under Napoleon and is a perennial favourite because it is simple to use, does not need to be declared on tax forms and anyone can have one.
Another less well-known tax-free option is the Livret d’Epargne Populaire (LEP), which has a ceiling of €7,700 and a current rate of 2.75%. A maximum of two can be opened per household - ie. one for each partner; whereas any individual may hold a Livret A or LDD. It is means-tested - your income tax bill for 2010 income should not have been above €769.
There is also the Livret Jeune, for people aged 12-25, which must have a rate of at least that of the Livret A (banks can fix theirs freely) and has a ceiling of €1,600. Note that non-residents may have a Livret A but not an LDD, LEP or LJ.
The rise in the Livret A ceiling will benefit individuals and families, who will be able to save more money taxfree, for example towards a deposit on a house, as well as benefiting the social housing sector, in which funds placed in Livret As are invested.
However the move has been criticised both by those who accuse the government of backsliding on promises (President Hollande had spoken of a doubling from summer 2012) and critics who say it will be bad for the economy. Some have claimed that money is not lacking for social housing - building is rather being held up due to lack of suitable land. Banks said the ceiling rise would limit investment into other accounts, whose money they can lend to businesses.
It may also come at a cost to assurance vie, a taxed savings option aimed at long-term investment and which helps finance business and the state.
State finance watchdog the Cour des Comptes suggested offsetting the loss of tax and social contributions by levying social charges on interest over and above that generated by money invested up to the original ceiling.
This has now been ruled out by Budget Minister Jérôme Cahuzac, both for the Livret A and the LDD.