Are you discovered? Are you hesitating to dip into this booklet A that you have religiously fed for many months and which will increase by 3% from February 1? Above all, don’t hesitate: draw! The proof in numbers.
Your bank account turns red? In doubt, draw from your Livret A, LEP, LDDS or other precautionary savings account to avoid agios, or even intervention commissions. You have lost too much to let your current account navigate in the red…
To prove it to you, MoneyVox engages in this exercise: on the one hand how much do you lose by drawing on a booklet, on the other how much do you save by avoiding bank overdraft days?
How much interest are you losing on Livret A?
Let’s take a standard case. A Livret A with 6,000 euros, which roughly corresponds to the average portfolio of nearly 55 million Livret A held by individuals in France. Maintained at this level continuously throughout 2023, from January 1 to December 31, this booklet will bring you 175 euros netat an average interest rate of 2.92%: 2% for the month of January, then 3% from February… and probably more from August, but let’s stay on the assumption of 3% until the at the end of 2023 faced with the impossibility of precisely anticipating the rate of the Livret A account in 6 months.
What will happen if you draw 1000 euros, this Tuesday, January 31, while waiting for your pay, to mop up an overdraft? You will automatically lose a fortnight. A what? Most often the interests of bank books are calculated according to the rule of fortnights: when you withdraw on January 31, the value date used is January 16. Clear, going back and forth on a booklet makes you lose interest…
A 3% booklet: this trick to maximize your interests
But is it so serious? For our savings account A of 6,000 euros, if you withdraw 1,000 euros on the 31st to put them back in the account a week later, the bank will count 6,000 euros in savings over 22 fortnights in 2023, and 5,000 euros (following the withdrawal of 1,000 euros) over 2 fortnights. For a week of hollow on your booklet A, you lose the second half of January paid 2% and the first half of February paid 3%! Result: instead of 175 euros, you will only receive… 172.91 euros in annual interest. Or 2euros and 9 cents lost! Too bad… but there is more serious.
Livret A: save 1000euros at 3%, how much interest has been earned in 1, 5 or 10 years?
How much will this overdraft account cost you?
It depends: on your bank, on the amount of your overdraft, on your banking package… and of course on the amount of your overdraft. Nevertheless. With rare exceptions, you will always have more to lose by staying in the red than by depriving yourself of a handful of interest on your Livret A.
And even if you have a automatic overdraft authorization. This name can be misleading: this authorized overdraft does not mean that you pay nothing! He works like a credit: when your balance goes into negative, the bank lends you money (we speak of overdraft facility) and charges you for this debtor interest, better known as agios. Yes, agios are also due in the event of an authorized overdraft!
Here is how agios are calculated:
Debtor interest = overdraft amount debit rate number of days 365
Authorized overdraft rates charged by banks range from 7% over 20%! Let’s go back to our example: an overdraft of 1000 euros from Tuesday January 31, and this until Monday February 6 inclusive, a few days after having received your salary, or in the crowd of the transfer of your pension or other allowance. That is 7 days with an authorized overdraft of 1000 euros. With a low overdraft rate, 7%, the rating is 1.34 euros. With a high rate, 20%, it is 3.80 euros. Even with a median overdraft rate of 0.12%, you pay 2.30 euros in agios.
Not serious? Maybe. But the bill appears higher than the 2.09 euros that you lose in interest on your Livret A.
Authorized overdraft: what it really costs you
Above all, leaving your account in the red makes you run the risk of an overdraft. However, there, the invoice can quickly fly away. The borrowing rate applied each day then ranges, depending on the banks, from 16% to 20.79% (usury rate in February 2023). And each payment or transaction going through your overdraft account may be subject to a intervention commissionwhich generally climbs 8euros per operation… Faced with a few pennies lost on a booklet A, the game is not worth the candle.
Of course, there are exceptions. Some online banks do not charge intervention fees, and some banks apply reduced lending rates, around 10%. Some packages also provide for the absence of authorized agios for overdraft. And bank advisers can grant their clients a favor with a systematic discount on premiums. Certainly. There remains a general principle to remember: an overdraft often costs much more than a few flights of interest…
Statement of overdraft rates authorized or not authorized in banks
Agios even having quickly ponged the overdraft?
Despite all the precautions, the right reflexes sometimes reserve unpleasant surprises, as evidenced by the testimony of PL., a faithful reader of MoneyVox: My bank charges me agios fees for a negative balance of 50 euros covered the same day by 100 euros! Unpleasant surprise which is explained by the value dates, while the agios are calculated on a full day and not on a few hours flowing during this day. For reasons of processing times, and depending on the time of the transaction, the value day (the day used for the calculation of debit interest, in other words the agios) may be out of step with the transaction date (the when this transaction was recorded). In short, depending on the value dates recorded for credit and debit transactions, this situation is possible, even if you have cleared the overdraft almost immediately…
In this case, two councils, one in reaction and the other in anticipation. In reaction: you can ask your banker for explanations on the dates selected… then ask him for a commercial gesture, in order to erase these debtor interests taken despite your financial discipline. And the ultimate advice, in anticipation: here is one more reason to draw quickly on your booklet BEFORE even being in the red. A reflex to take.
The ranking of the least expensive banks