Savings: why leaving money in your current account is counterproductive?
Following the health crisis, the level of savings of the French is at its highest. Current accounts and passbooks are seeing inflow levels that are rarely achieved.
However, is money sleeping? Should you put your money elsewhere? We explain why leaving your money in a current account is counterproductive.
What to know about money in a checking account
The current account is necessary for everyday life. His provision must be sufficient to pay the bills, his rent or his loan, the races, the outings, and meet his day-to-day needs.
Contrary to popular belief, the money placed in your current account does not sleep. Because the savings that are accumulated there, if not injected by you into the economy, are not your bank.
Indeed, the money entrusted to your banker is used by borrowers, individuals or professionals, to finance their projects of all kinds (real estate, business) and to deal with hardships.
In addition, savings in the current account do not fear the crisis. She is reassuring, especially in uncertain times. And each French person is insured for investments made up to 100,000 euros, by the bank deposit guarantee. There is therefore no liquidity risk.
On the other hand, each euro placed in a current account is a euro that does not bear fruit for the depositor, even if it serves the recovery of the economy. Under these conditions, it is understandable that leaving your money in a so-called “current” account is counterproductive.
Why shouldn’t you put your money in a current account?
In reality, the savings paid into deposit accounts is the money placed in your current accounts, but also in your savings accounts such as livret A, popular savings account, sustainable development account, etc. .
What brings a current account closer to a passbook is the availability of savings. The money is available immediately and you can therefore draw from it what you want to deal with the vagaries of life.
In this case, what is the problem? Quite simply, the money placed in this type of account is rarely withdrawn. The average annual amount of withdrawals from a livret A is only around 2,500 euros. What’s more, savers strive to quickly rebuild their savings in the following months.
And this money, placed in your current accounts and savings accounts, does not grow, or very little. In 2021, current accounts are generally not remunerated, and the livret A has an interest rate of only 0.5%. For 15,000 euros of savings in a current account, you will only earn 75 euros in 1 year.
And the problem is, you don’t make money, you lose it. Indeed, with inflation of nearly 2% over 1 year, the 15,000 euros placed in a savings account a year ago is equivalent to 15,300 euros today, whereas you will only have 15,075 euros .
Therefore, we understand very well that if holding your money in accounts where withdrawal is easy, reassures. But, it is not remunerative, and individuals who operate in this way lose out.
How much should I leave in my checking account?
Ideally, you leave in your current account the amount of salary or pension you need every month. For this, we calculate all its average expenses by including all our expenses, including occasional ones.
If you have any doubts, or are afraid of miscalculating, most banks allow you to produce graphs in line with the amount of expenses for the month or the year. Take the annual amount and divide it by 12. You will thus have enough to live on every month and manage your budget better.
For savings, we still keep a booklet, the most interesting being the LEP Livret d’Épargne Populaire, then the Livret A. We don’t put our booklets on the ceiling, which would be counterproductive, but we keep the equivalent to a maximum of 3 months of expenses. This calculation makes it possible to adapt the available liquidities according to its real needs.
The rest of your savings can then be invested in the investments of your choice, most of which remain unlockable in the event of a glitch. The more cautious will choose life insurance with effective euro support, while others will opt for a PEA to bet on the stock market.
But be sure, no matter how much risk you are willing to take, and even if it is minimal, there are always savings products that are just as reliable as passbooks, but much more profitable, so that your money produces money!