Keeping your savings in your current account is losing money: true or false?
120 billion euros is the amount of savings accumulated on current accounts in 2020 by all French people. A figure that makes you dizzy and is largely explained by the fear linked to the uncertainties of the health crisis.
While the Covid-19 risk seems to be slowly receding, war is on Europe’s doorstep and does not reassure savers any more. We can therefore expect high outstandings on current accounts again this year.
And yet, it is customary to say that the sums placed in current accounts are a bad idea, because “it’s money that sleeps”, because “we lose money”. Belief or reality, decryption in this file.
False: money placed in current accounts does not sleep
First of all, stop with the received ideas. If you put money aside and leave it in one or more current accounts, you have no reason to feel guilty. Indeed, you can be reassured, because you are actively participating in the economic recovery.
Thanks to your money, and despite the shifting balances of your bank accounts, the bank has an internal reserve which increases its financing capacities. It is therefore easier for him to lend money by granting loans to individuals and professionals.
Your money is therefore well used in the context of short, medium or long-term financial loans. Individuals can buy their main residence or bring their personal projects to life, while companies can benefit from emergency cash flow or diversify their activity.
The Managing Director of Crédit Agricole SA, Philippe Brassac, recalled this during the Finance Committee which met before the Senate: “All savings are used to finance the economy, there is no no sleeping money! “. With this simple sentence, he sets the record straight regarding the notion of dormant money, which is absolutely unfounded.
However, if the money left in a current account is useful to banks and borrowers, it does not bring you anything. At most, it reassures you about the sums you have, and allows you to be serene thanks to a “safety mattress”.
True: the saver leaving his money in the current account is a loser
Money left in a current account is “precautionary savings”. It is not remunerated, but the saver takes no risk by betting on a current account. It is true that 10,000 euros in a current account will always be 10,000 euros the following year.
However, don’t forget about inflation. Indeed, this indicator reflects the rise in prices within the market economy. In other words, if inflation exists, your euros lose value. However, in crisis contexts, inflation is a constant that is repeated in history.
Thus, current projections estimate that inflation in France will be 3.6% for the year 2022. Your 10,000 euros placed in a current account are mechanically eroded, and will only be worth 9,640 euros at the start of 2022 if the financial specialists are not mistaken.
If keeping cash to deal with the unexpected is a form of wisdom, it is better that this money earns you a little. Some investments will therefore be more appropriate than the accumulation of your euros in a current account, without putting you in a position of insecurity.
Ideally, leaving up to 1 month of income in your current account at all times allows you to react immediately if necessary. But you shouldn’t put more savings into it, for your own sake.
So, where to invest your savings without taking risks?
The current account represents in the eyes of the most cautious French people two major advantages, namely liquidity on the one hand, that is to say the ease of recovering one’s money, and security on the other hand, because the sums invested do not depend on the vagaries of the financial markets.
But the current account is not the only savings product to provide you with these two advantages. Indeed, you can turn to paid and available products, presenting no risk of loss. This is particularly the case:
- Regulated or unregulated booklets,
- Money placed on the euro funds of a life insurance.
By opting for one of these two investments, or even both, you can leave the equivalent of several months of income, without any fear of losing money.
Ideally, placing the equivalent of 3 to 6 months of income on a booklet, and the rest on life insurance is a good strategic choice. For what ? Because the savings placed in a passbook are immediately available, whereas those placed in life insurance can take a few days to come back to you, the time to carry out the partial or total redemption procedure.
Among the booklets available on the market, you have the choice between:
- The LEP People’s Savings Booklet,
- Booklet A,
- The LDDS Sustainable and Solidarity Development Booklet,
- The youth booklet if you are between 16 and 25 years old.
The LEP and the young booklet are the most interesting in terms of rate of remuneration, but their possession is subject either to income conditions or to age conditions. The LEP was upgraded to 2.2% in February 2022.
As for the livret A and the LDDS, their rate was revalued to 1% on the same date. Livret A is used to finance social housing and urban renewal, while the LDDS finances SMEs as well as the social and solidarity economy.
These four booklets have a major advantage: they are completely tax-exempt. You therefore have no taxes or social security contributions to pay on the interest earned.
The life insurance fund in euros
The life insurance contracts available on the market today are all “multi-support”. This means that they are made up of the following two components:
- A fund in euros: fully secured by the insurer and with guaranteed remuneration,
- Units of account: they can be made up of shares, bonds, UCITS, SCPIs, ETFs, etc., they carry a risk of capital loss.
Some insurers do not impose a minimum investment in unit-linked savings. As a result, the most cautious savers can still invest solely in the euro fund of their life insurance, without taking any risk.
Note, however, that expectations for returns on funds in euros are down for the year 2022, and even the best contracts should struggle to exceed 1.5% interest.