Precautionary savings: is it worth investing in livret A or in the euro life fund?

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The Livret A booklet, which saw its tariff double on August 1, 2022, posted a record collection this summer. Individuals flocked to this now more attractive investment with € 2.6 billion invested in this medium in July. As for euro-denominated life insurance funds, whose performance has been declining for more than 20 years, there is rather an outflow. Which investment should be favored to put aside your precautionary savings? Our comparison between two means that make it possible to build an emergency fund.

An increasingly similar return for the 2 investments

The Livret A passbook, whose rate was set at 1% until last July, doubled to reach 2% on August 1, 2022. The government wanted to significantly increase the yield on this stellar investment in regulated savings over this period of inflation.

This very significant increase obviously leads savers to question the importance of keeping their savings in the euro life insurance fund. It should be remembered that the return of the euro fund averaged 1.30% in 2020 as in 2021. But beware, the annual performance of the euro fund is variable and cannot be known in advance. However, two arguments call for an increase in life insurance rates. First, government bond yields increased. Thus, on June 16, 2022, the yield on the French 10-year Assimilable du Trésor (OAT) Bond was, for example, 2.35%. And although it has declined slightly since then, the level is well above the level observed at the same time in 2021. However, the euro life insurance fund is invested mainly in bonds and the rise in the bond market will necessarily have a positive impact on the its performance.

Furthermore, the significant increase in the rate of passbook A could induce insurers to increase the fund’s yield in euros so that passbook A does not cloud it. For this, insurers will be able to draw on the provision for profit sharing. You should know that the insurer invests the capital you invest in the euro fund both in government bonds but also in a slightly more dynamic pocket, which will allow it to increase the performance of the euro fund, without necessarily having an impact on the fund’s return. annual in euros. Indeed, the insurer is not obliged to distribute all profit sharing. He can allocate a share to the “profit sharing fund”, a fund that he must distribute to the policyholders within a maximum period of 8 years. There is therefore a good chance that this year the provisions will be partly distributed to compete with the Livret A.

It should also be remembered that the performance of the euro fund presented each year is average. This rate varies from fund to fund and there are strong disparities, particularly as regards the different types of euro funds.

Also read: These regulated savings books that will increase on August 1st

Consider the tax benefits

However, the rate served is not the only parameter to be taken into consideration. Indeed, investment taxation remains a key issue. Booklet A not only has an interest rate of 2%, but also allows you to benefit from a total exemption from taxation (tax on capital gains and social security contributions).

On the other hand, life insurance earnings are taxed at 30% flat tax. However, beyond the 8-year contract there is an annual allowance of € 4,600 for a single person and € 9,200 for a couple. Furthermore, provided that the residual balance on all contracts does not exceed € 150,000 for a single person and € 300,000 for a couple, after 8 years of ownership, the taxation of earnings (excluding safe deductions) is only 24, 7%, i.e. 7.5% + flat-rate discharge and 17.2% of social security contributions).

Livret A therefore has a far from negligible tax advantage over the euro fund for life insurance. But beyond 8 years of imprisonment, the annual allowance still allows you to be able to withdraw money from your emergency fund without being taxed, as long as you do not exceed the limit, which will not always be the case.

Take into account the availability of funds

Finally, when choosing the envelope to favor for your precautionary savings, it is recommended to also take into account the availability of funds.

In fact, the precautionary savings should allow you to pay off all your unforeseen and urgent expenses. This is why it is also called an emergency fund. It is therefore necessary to be able to release these funds quickly.

For this, livret A is ideal because the sums can be instantly transferred to your checking account. On the other hand, to make a redemption on the euro fund of your life insurance, the delay can be variable. Therefore, most of the contracts offered by online players provide for a transfer of funds in a few days, while the contracts of traditional banks provide for a transfer of funds in one or more weeks. So be careful to take this point into account when choosing the envelope on which you will build an emergency fund.

As for the ceiling, unlimited on the euro fund and equal to 22,950 euro for livret A (and 12,000 euro for the LDDS which has the same rate, or a total of 34,950 euro set at 2% risk free), it should not be too much taken into account. consideration in the choice of means because the specificity of precautionary savings is that of being able to pay unexpected bills and cope with emergencies. Everything else must be invested in the financial markets through different assets to be chosen according to your investor profile.

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