Livret A Yield Set for Another Downward Spiral
Augmented Interest Rate on Livret A Set for August 2025: Unfavorable Developments Revealed
Brace yourselves, fellow French savers! The Livret A yield, which was slashed from a high of 3% to the current 2.4% back in February, is about to take another dive this summer. With inflation on the rise, there's no escaping this financial storm.
(Photo by Prostock-studio/Adobe Stock)By Thibaut LamyHead of service (Employment, retirement, taxes, investments) at our site.fr. Published on
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The Livret A, held by an staggering 57 million French individuals, is about to feel the brunt of inflation once more. After staying stagnant at 3% for 18 months, its earnings have been nibbled away to 2.4% as of February 1, 2025. And now, the interest rate for this tax-exempt savings product is set to plummet even further on August 1 next year. There's no doubting this, thanks to the soaring inflation.
The Livret A's yield is recalculated every February 1st and August 1st, employing a calculation formula that's based halfway on the annual increase in prices excluding tobacco observed during the previous six months. Given that inflation, as reported by INSEE, was limited to just 0.8% in April, it's a reasonably safe bet that the Livret A's yield will be affected.
The next six months' average price increase is likely to drop below 1%, as the inflation excluding tobacco has slipped from a whopping 1.6% in January to a measly 0.7% in February and March, and then to 0.8% in April.
Livret A's yield looks grim
One more factor influencing the Livret A's yield calculation formula is interbank rates (the bank-to-bank exchange rates), which account for half of the calculation. Although they stood at a hefty 2.92% on January 1, 2025, they have dipped in response to the European Central Bank (ECB) rates, which slumped by 0.25 points on February 5 and March 12. The ECB will review its monetary policy on April 17 and June 6 this year, while another decrease of 0.25 points in its key rates isn't beyond possibility. If this happens as early as April, the six-month average of interbank rates could reach a moderate 2.46%.
This averaging of inflation and interbank rates for the first half of 2025 would result in a Livret A yield of approximately 1.70% on August 1st.
Livret d'épargne populaire (LEP) could buck the trend
If this forecast materializes, savers should be prepared for a yield decrease of around 0.7 percentage points, following a previous decrease of 0.6 points in February. The only glimmer of hope is the chance that the Governor of the Bank of France, François Villeroy de Galhau, and Bercy might choose to deviate from the calculation formula and boost the Livret A yield. This lever, unfortunately, remained unused at the beginning of the year when the Livret d'épargne populaire (LEP) yield was maintained at 3.5%, whereas strict application of the calculation formula would've brought it down to 2.9%.
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In the face of soaring inflation, savers may witness a further decline in the Livret A's yield, potentially dropping to approximately 1.70% on August 1st next year. As personal-finance strategies become increasingly crucial, it's essential to explore opportunities like the savings account comparison service for optimal placement of your finance.
