Why are the French so enamoured with 0% interest earning cash?
As Philippe Crevel from the Cercle de l’Epargne notes, the total volume of cash deposits in France reached a new record at the end of 2018, to top 422 billion euros. In other words, the amount that the French have deposited in their current accounts is roughly equal to the GDP of Belgium! And even though this money does not generate any interest for its owners, the amount of “cash that sleeps” continues to increase rapidly, growing by 32.4 billion euros in 2018 alone, and by more than 172 billion euros in the last 10 years.
During this decade, the outstanding balance on the French Livret A accounts increased by more than 70% to reach 282 billion euros at the end of last year, according to the Caisse des Dépôts et Consignations. And during the first quarter of this year, a further 10 billion euros were added to that. Said differently, the 292 billion euros deposited by the French on the Livret A surpass the combined market capitalisations of LVMH and Sanofi! However, this money only earns 0.75%, which is less than the rate of inflation. How can one explain the enthusiasm for cash deposits and the Livret A, even though we know that by leaving our cash in current and Livret A accounts, we actually lose in purchasing power, as inflation gradually eats away at our savings?
Several factors can explain this tendency. Firstly, in a perfect rational way, the French wish to have a certain amount of money at their disposal for precautionary reasons and put some cash aside to be able to face unexpected expenses. From this point of view, both the current and the Livret A accounts are very advantageous, because both offer maximum security (as the money sitting on current accounts falls under the Deposit Guarantee scheme, up to one hundred thousand euros per person per bank) as well as immediate liquidity.
To this, we add an aversion to risk which is very widespread amongst French savers. This aversion is related to the fact that the savings universe is often viewed as highly technical, obscure and dangerous - a perception largely stemming from what is highly likely a weak financial culture, but reinforced by the fact that the stock markets strongly corrected in 2018. Indeed, the performance of numerous types of riskier investments was negative, most notably including unit-linked life insurance contracts which lost 8.90% on average last year according to the French Insurance Federation. This will not have gone unnoticed by the French savers and may have influenced the choice of their investments at the start of the year.
Lastly, the increase in deposits on current and Livret A accounts may have been stimulated by the measures announced by the government last December, encouraging companies to pay bonuses to their employees, thereby bolstering their income supplements for low income workers. These measures were implemented with the aim to boost people’s purchasing power and overall consumption, but it can not be excluded that certain beneficiaries chose to put part of this incremental income aside.
Taking French savers’ strong aversion to risk into account, but also noting their frustration with the loss of purchasing power, resulting from inflationary pressures, Cashbee wishes to contribute to the necessary evolution of their savings habits. Our app offers them the possibility to earn interest on their cash holdings, without having to change banks, nor lose access to their money in case of need, and without taking risk, in a very simple way. You want to find out how? By connecting your current account with a new bank account in your name, at one of our partner banks, which is in need of retail deposits, and which is therefore willing to pay interest on them. For further information, please go to cashbee.fr!
About the author
Co-Founder of Cashbee