Livret A rate falls to 1.25%

SAVERS will see the interest rate on the Livret A reduced from 1.75% to 1.25% from August 1 under plans agreed between the finance ministry and the Banque de France.

The rate is tied to the rate of inflation and this should have meant that the Livret A rate fell to a record low of 1% - but the bank governor this was “too brutal” for France’s favourite savings account and would hurt the millions who invest in them.

Governor Christian Noyer suggested limiting the fall to a record-equalling low of 1.25%, which will also apply to the Livret de Développement Durable.

This would still allow some real growth for investors but also pull in enough deposits to fulfil the major funding target of the Livret A, to help pay for social housing. In all, 65% of the money invested in Livret A accounts goes to fund social housing.

One of President Hollande’s campaign promises had been to increase the ceiling of Livret A holdings and this gave the investment a new lease of life over the past year. Last year alone accounts took €49.17billion against €17.49bn in 2011 and already €20bn has been invested this year.

The maximum holding of €22,950 will draw interest of €286 at the new interest rate, against €401 under the old 1.75% rate – but the accounts are still attractive as they are tax-free. Rivals from high street banks may offer initially attractive rates of 5% but when they fall back to the typical 2.2% before tax they become immediately less attractive than the Livret A.