Despite its doubling announced yesterday, the Livret A rate, 1% as of February 1, remains well below inflation and therefore does not effectively protect invested money from the effects of rising prices. A phenomenon which is not new and which should last.
This hadn’t happened since August 2011! Next February 1, the Livret A rate will increase for the first time in 10 years, from 0.50%, its legal floor, to 1% net of taxes and social security contributions. This is obviously good news for the 55 million French people who have one. The net annual yield of a Livret A at the ceiling (22,950 euros) will thus double, from 114.75 euros to 229.50 euros.
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However, we must put things into perspective. Even at 1%, the Livret A rate will indeed remain well below inflation excluding tobacco, which reached 2.8% over one year in December 2021 and January 2022, and should remain above 2.5%, according to INSEE. Clearly, the real yield of the Livret A, report the price increase, will stay largely negative, around -1.8 points.
A rate of 2.75% with the old formula
This situation is not new. With the exception of the first months of the health crisis, between June 2020 and April 2021, when inflation fell below 0.5%, the real yield of Livret A has been negative since February 2017. It should stay that way forever. Because the current formula for calculating its rate, in force since June 2018, no longer provides for an inflation floor, as was the case before, when its rate could not, in theory, fall below the consumer price index. (CPI) excluding tobacco for the previous month rounded to the nearest quarter point. The difference is significant: by applying the old calculation formula, the Livret A rate would thus have been 2.75% on February 1!
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With the new formula, the Livret A rate is durably lead by the weakness of the ster, the ECB’s benchmark interbank rate, permanently anchored in negative territory, around -0.5%. This, in fact, now carries the same weight as inflation in the calculation formula.
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