The Livret A is the preferred investment of the French. This regulated savings product is held by 55.6 million people (figures at the end of 2019 according to a report by the Banque de France). Since August 1, its rate has doubled, going from 1 to 2%, reaching its highest level since 2012. The remuneration of the Livret A had already doubled last February, going from 0.5% to 1%.
In reality, the Livret A rate is automatically revised twice a year. “In January and July, with application on the 1st of the following month”, indicates the Service-Public.fr site. If the rise in the rate seems to be good news, it nevertheless takes a certain number of years to see its starting capital double.
How long does it take to double your capital? The answer to this question leads us to evoke an old calculation formula, making it possible to determine the number of years necessary to double its initial savings, according to the interest rate at which it is placed. This is Albert Einstein’s “rule of 72”.
To obtain the number needed to double the capital, simply divide 72 by the annual rate of return on the investment. In our case, we must divide 72 by 2: the capital will double in 36 years. To give a concrete example: 1,000 euros placed at 2%. At the end of the first year, the remuneration is 20 euros (1000×2/100 = 20). You get a capital of 1,020 euros. If you let this capital grow at the same rate of 2% the following year, you obtain a capital of 1040.40 euros. If you continue this calculation after 36 years, your capital will reach 2,039.89 euros.
However, this calculation formula has its limits. Indeed, it does not take into account several important factors including inflation, risks or even taxation which evolves with finance laws. It is also very unlikely that the rate will remain at 2% for several years.