The rise in the Livret A rate, which rose to 2% in August, could encourage you to favor regulated savings rather than euro life insurance funds, which are often less profitable. Despite appearances, the choice is not so obvious. Here are 5 comparison elements to see more clearly.
Thanks to a 2% rate which will continue to increase in 2023, the Livret A savings account is popular with savers. Especially in comparison with the remuneration of life insurance funds in euros, the capital of which is guaranteed. As a result, in September, the net inflow of savings accounts, i.e. the difference between savers’ deposits and withdrawals, reached nearly 2.7 billion euros. This is more than ten times the amount of September 2021! From now on, the outstanding amount of the Livret A and its false twin, the Livret de Développement Durable et Solidaire (LDDS), has exceeded the symbolic bar of 500 billion euros. So do we really have to abandon life insurance for Livret A today?
1- Performance
When comparing two savings products, we necessarily focus on their performance. You have one side 2% for the rate of your Livret A or the LDDS and on the other, an average remuneration of 1.28% in 2021 on the euro fund of your life insurance contract.
But the Livret A pays 2% interestcalculations fortnightly, only since August 1. Between January 1 and February 1, the rate was 0.5% then 1% until August 1. What actually makes a annual rate 2022… 1.375%. To be compared therefore with the 1.28% interest in 2021 for the life insurance fund in euros. Please note: the return on the fund in euros is a rate net of management fees from which 17.2% of social security contributions must be deducted. A fund in euros in the average therefore brings in just over 1% net… The Livret A account seems more interesting for the moment.
Over the first nine months of the year, inflows exceeded 26 billion euros, compared to just under 20 billion euros in 2021. Thanks to two increases in its rate, Livret A is the investment of the year by simultaneously offering security, liquidity, zero taxation and an honorable return in the current context. Admittedly, with inflation above 5%, its real return is negative, but the latter is well above the average return on other savings products, explains economist Philippe Crevel. Only the People’s Savings Account offers a higher rate, 4.6%, but it is only reserved for some savers. The benefits of the Livret A penalize long-term savings, life insurance having recorded outflows in August. It should be noted that a further increase in the rate for the Livret A is expected on February 1, 2023. Given the current price increase, its rate could exceed 3%.
But life insurance has not said its last word. According to several experts, the remuneration of life insurance funds in euros could well come close to, or even exceed, that of the annual rate of the livret A in 2022 of 1.375%. The firm Facts & Figures estimates that the average rate for the profession could be between 1.60% and 2% in 2022. A forecast confirmed by Gildas Robert, director of actuarial and financial consulting at the consulting firm Optimind. According to him, if insurers dig into their reserves, this could lead to an average paid rate of between 1.80% and 2%.
In addition, life insurance can allow you to generate more interest than that provided by your euro fund. condition of course, to diversify your investments. The euro fundwhich provides a 100% capital guarantee, very often represents only part of your life insurance investments.
The latest figures from France Assureurs stopped at the end of August confirm this. Although net inflows for funds in euros have fallen by 12.4 billion euros since the start of the year, units of account, potentially more profitable but also more risky, recorded net inflows of 24.5 billion. The units of account, whose capital is not guaranteed, thus make it possible to invest in shares, bonds or even in real estate. This would allow the medium term to reach, according to Yves Conan, the general manager of Linxea, an annual return closer to 4 or 4.5% than 2%.
Livret A advantage if you do not take any risk
2- The payment ceiling
As you may know, payments on a Livret A are limited. The deposit limit is currently 22950 euros. A threshold which can then be supplemented by the interest generated. Thus, the authorized ceiling can be exceeded, but only thanks to capitalized interest.
Good euro funds this year will pay just over 2%. If your Livret A is at the ceiling, the additional receptacle is life insurance, adds Yves Conan. Indeed, on your life insurance contract, you can invest as much money as you wish. You can even open several contracts.
life insurance benefit
3- The time limit for withdrawing your money
Whether on your Livret A or on the euro fund of your life insurance contract, you have the possibility of withdrawing your money as soon as you need it. But a difference remains. For Livret A, a simple transfer will happen immediately if your current account is with the same institution. For life insurance, it will take a period ranging from 2 to 10 days. The insurance code sets a maximum period of 2 months. Note that for a withdrawal on life insurance less than 8 years old, the tax advantage is less attractive.
4- Transmission
The rise in the rate [du Livret A] may have created a draft. However, the two products are not comparable because they are not used to finance the same life projects for the French, declared Franck Le Vallois, managing director of France Assureurs during a press conference on 29 September. Indeed, one of the big advantages of life insurance is that the amount of the contract does not not part of the estate of the insured.
This contract therefore makes it possible to benefit from reduced taxation on the transmission of financial assets upon death for payments made before the age of 70. It is therefore possible to transmit sums to a beneficiary without having to respect the hereditary reserve, that is to say the minimum part of an estate which necessarily goes to his descendants. This reserve is 50% when there is one child and 66% for two children.
Life insurance also makes it possible to give money to a person with whom the insured does not necessarily have a relationship. Be careful, heirs who feel wronged can raise the notion of grossly exaggerated premiums to denounce this decision.
Conversely, sums deposited in a Livret A passbook are completely included in the estate. The heirs will therefore have to pay inheritance tax.
life insurance benefit
5- Fees
Ct Livret A, it’s simple: zero fees. In the case of life insurance, the analysis of costs is much more complex… For an investment in a fund in euros, the return is however announced to you net of management fees: you can therefore compare performance without worrying too much about these costs. .
On the other hand, pay attention to the fees on payment! If you have ever taken out your life insurance at a bank, they probably charge a fee each time you deposit money, which immediately causes you to lose 1 to 2 years – or even more – of earnings. Good news: online life insurance players do not charge fees on payment. But stay vigilant on this point.
The balance sheet
The increase in the rate of Livret A and other regulated savings accounts is not a sufficient reason to boycott life insurance and in particular the fund in euros, which is only one support among others, alongside units of account.
Whether both products offer certain advantages, it is best to combine them. On the one hand, place precautionary savings in their Livret A savings account, comprising between 2 and 6 months of income, and available in case of need (birth, change of washing machine, car repair, etc.). And at the same time bet on life insurance, to obtain more returns over the long term and finance bigger projects (real estate for example) or prepare for your retirement or your estate.
Life insurance: the comparison of reduced cost offers