Except in the event of a political or economic surprise, the Livret A rate will remain at 1% throughout 2022. A boon? Not so sure. At this rate, it still takes 70 years to double your capital… A shortened time to just 32 years for LEP! What about other risk-free investments?
Double your savings by depositing it in an investment guaranteeing you to recover your stake at any time? A mirage, in 2022, even if the rebound in Livret A rates and others obviously shortens the period. So why look at the number of years needed to double your capital, in a very theoretical scenario of maintaining rates at their current level? This “fictional calculation” makes it possible to compare performance in a more concrete way than with very low percentages. Simulation, comparing the 5 products held by the largest segment of the population: the Livret A, life insurance, the LDDS, the housing savings plan and the popular savings account.
Booklet A and LDDS: septuagenarian take-off
1% is better than 0.5%. It’s even double! In fact, the rebound in the Livret A rate – and automatically that of the LDDS, which displays an identical rate – is good news for the French, who favor these booklets for their precautionary savings. But they do not allow your money to grow at the same rate as the surge in consumer prices, since inflation was 2.8% at the end of 2021 and INSEE now forecasts a peak of 3.4% in June 2022.
On a Livret A or an LDDS, the rate of remuneration of 1% is exempt from all taxation. Despite the recent increase, taking into account the capitalization of interest – the annual remuneration is added each year to the capital, which generates new interest – you will still need 70 years to double the savings deposited on a Livret A at the current rate. As long as the – current – reign of Elizabeth II! But it is still much better than last year: MoneyVox then calculated a period of 139 years to double your savings with the old rate of 0.5%.
|Livret A remunerated at 1%||Capital|
|At the beginning||€10,000|
|After 5 years||€10,510|
|… 10 years||€11,046|
|… 20 years||€12,202|
|… 70 years||€20,067|
|… 100 years||€27,048|
The simulation detailed in the table above is based on the following principle: 10,000 euros deposited at 1%by then letting these savings “work” without withdrawing or depositing anything. And starting from a totally theoretical hypothesis of maintaining the rate at 1% for almost a century…
Its weak point : support adapted to precautionary savings (2 to 3 months of income), the Livret A – like the Livret de développement durable et solidaire (LDDS) – does not, however, allow you to grow capital over the long term .
1,000 euros on a Livret A, how much interest does that make in 1, 2, 5, 10 and 20 years?
More than 1,000 years for bank books!
The remuneration of the Livret A seems weak to you? Compared to the average 0.09% of “classic” bank books, the Livret A rate is a bargain! Taking into account taxation (single lump sum, or flat tax, at 30%), you would need more than 1,111 years to double your savings on a “classic” bank book remunerated at 0.09% gross…
And again, this average rate of 0.09% calculated by the Banque de France takes into account promotional rates… Excluding one-off bonuses, classic bank books yield an average of 0.05% gross, or 0.035% after flat tax. At this rate, you will need very precisely 2,000 years to double your savings!
Life insurance: 66 years on a fund in euros
By definition, it is impossible to know the returns of funds in euros in the years to come, and even less over the decades to come! Let’s take the last reference rate: the average return calculated by the insurance regulator, the ACPR, 1.28% for the year 2020, knowing that the returns are generally stable in 2021. We must deduct the social security contributions (currently at 17.2%), deducted each year from the interest on the euro funds.
At this rate, it would take more than half a century to double your wealth! 66 years oldmore precisely: more time than it took the Voyager 1 and 2 probes to leave the solar system…
|Euro funds at the average rate *||Capital|
|After 5 years||€10,541|
|… 10 years||€11,112|
|… 20 years||€12,347|
|… 30 years||€13,720|
|… 66 years old||€20,053|
* 1.28% after management fees, according to the ACPR, in 2020, approximately 1.06% net after annual social security contributions (17.2%)
Its weak point : the life insurance fund in euros is irretrievably on a downward slope. Until when ? Impossible to answer. Even if the 2021 returns are less “bad” than expected, it is now difficult to obtain “good” long-term performance without betting partly on unit-linked products.
The list of 2021 rates for life insurance
Invest in real estate from €1,000. Our list of the best SCPIs
PEL: 40 years for the old, 100 years for the new
Are you one of the lucky ones who opened a housing savings plan before March 2011? Double jackpot! On the one hand, your PEL is part of the old generation of plans, with no maximum lifespan (15 years maximum since March 2011). On the other hand, the contractual rate of 2.5% is guaranteed for the entire life of the product.
Admittedly, social security contributions – deducted each year from the 10th anniversary of the PEL – cut into this 2.5%. And interest is also subject to income tax (by default up to the flat tax, ie 30% social security contributions included) from the 12th birthday. But even by paying income tax and social security contributions each year, the net rate comes out at 1.75%. Currently unbeatable for a risk-free investment. Result: the capital is doubled in “only” 40 years old (1).
|Old PEL remunerated at 2.5% gross*||Capital|
|After 5 years||€10,906|
|… 10 years||€11,894|
|… 20 years||€14,148|
|… 30 years||€16,828|
|… 40 years||€20,016|
* By applying the 30% flat tax
Its weak point : only holders of a PEL opened before March 2011 can take advantage of such a rate to eternal life… Opening a PEL in 2021 offers a guaranteed rate of 1% (provided you respect the regular payments), the interest being subject to the flat tax (social security contributions and income tax). In other words: 0.7% net of tax per year. At this rate, you have to 100 years to double a capital… nearly 7 times the maximum lifespan of a “new” PEL (15 years).
My PEL is 10 years old: will it be closed?
LEP: 32 years but… twice as fast as Livret A and life insurance
On a popular savings account, it is impossible to start with 10,000 euros: the payment ceiling is 7,700 euros. Let’s start with 5,000 euros, remunerated at 2.2% net of all tax. Result: under current conditions, it would be necessary 32 years to double your savings and exceed the 10,000 euro mark thanks to the capitalization of interest.
Even stronger: with this rate of 2.2%, after 64 years, so before life insurance or Livret A have doubled the starting bet, the LEP will have multiplied it by four!
|LEP remunerated at 2.2%||Capital|
|At the opening||€5,000|
|After 5 years||€5,575|
|… 10 years||€6,216|
|… 20 years||€7,560|
|… 32 years old||€10,032|
|… 64 years old||€20,129|
Its weak point : for eligible households, the LEP is a better precautionary savings vehicle than the Livret A since the remuneration is doubled. The development of LEP has recently been hampered, among other things, by the need for holders to send in proof of resources each year. This chore has disappeared: the supporting documents must now only be presented at the opening, then the annual verification with the tax authorities is automated. In some banks, it is no longer even necessary to send your tax form at the opening if you are eligible.
Livret A, LEP, PEL… What is the best regulated savings product for you?
Wondering how many years a particular investment will allow you to double your capital? There is a formula to answer it, “Einstein’s rule”, then simplified by Dr. Albert Bartlett as explained Finance for all in an educational article: divide 70 by the figure of your percentage and you will obtain the number of years necessary to double the capital. This formula offers a rounded result but allows you to get an idea quickly.
An example. For an investment remunerated at 2%, divide 70 by 2 = 35. The capital doubles in 35 years.
What long-term alternatives, accepting some risk?
These calculations are already totally theoretical for risk-free products. Such a simulation would be unfounded for riskier products because, by definition, performance is bound to change much more strongly from one year to the next. The most obvious symbol being the latest annual performance of the CAC40: a surge of 26.37% in 2019 followed by a drop of 7.14% in 2020 and a record year at nearly 29% in 2021.
Nevertheless, if your objective is to grow your savings over the long term, it is currently difficult to do otherwise than by taking risks, even measured ones. The IEIF (2) estimates each year the returns of different investment families over several decades. In its last edition (1980-2020), real estate and the actions once again stand out as the most profitable investments in the long term, despite the ups and downs of the markets. The annual performance is around 8% over the last 10 years for shares and 6% for SCPIs. But beware: it is obviously impossible to predict future returns…
(1) Scenario retained for the PEL at 2.5% gross: a plan for which the annual interest is subject to the flat tax (12.8% income tax and 17.2% social security contributions). So a plan of more than 12 years, for a theoretical capital of 10,000 euros at the start of the scenario. This PEL being “expired”, no new payment is made: the savings are doubled in 40 years – with the taxation applicable in 2022 – only thanks to the capitalization of the interests.
(2) Institute for Real Estate and Land Savings.