For the last five years demand deposits have captured the majority of savings inflows in France and now amount to a record €415 billion, according to research published by BPCE’s Research & Forecasting Department.

An amount not seen for the last 25 years and probably the stand-out point from the “BPCE Quarterly Rendezvous – Savings” event organized in mid-December by BPCE’s Research & Forecasting team under the title “French savings at a time of dwindling confidence and economic slowdown”

Control and caution

A striking fact: the amount of money left by French households in their current accounts stands at record levels. The total sum reached €415 billion in third-quarter 2018, following a 50%-jump in five years.

What are the reasons for this? Alain Tourdjman, Head of Economic Research at BPCE, sees two factors to explain the phenomenon. First, “the sizeable concerns of individuals and households to control their budgets and keep money readily available” in order to respond to unforeseen events or costs and avoid overdraft risks. Second, “a fairly general behavioral tendency towards inertia, if not laziness” in response to what are deemed to be fairly unenticing rates of interest on special savings accounts like the Livret A or the Livret Développement Durable et Solidaire. And this, despite the negative effects of inflation. Alain Tourdjman also warns that this phenomenon will not be going into reverse immediately, either: “Our expectation is for the trend to gradually slow, rather than go fully into reverse. In addition, the level at which savers could start to transfer their savings seems to be between 2 and 3 %. We’re a long way from that point”.

Savings rate to rise in 2019, but risk-aversion remains

In view of this trend, what are the prospects for savings, deposits and other financial investments? “French households’ increased their savings rate in 2018 (to 14.5% versus 14.2% in 2017), while paradoxically, financial investment decreased… “, points out Eric Buffandeau, Deputy Head of Economic Research. Although housing-related savings products retreated, money-market and liquid investments fared well and life insurance resisted (€18 billion of cumulative inflow to end-September 2018), with inflow turning positive again for with-profits funds and reaching its highest level since 2010 for unit-linked products. Eric Buffandeau nevertheless adds that “the rise in the savings rate, to over 15%, should be coupled with an increase in financial investments in 2019, on the back of gains in household purchasing power related to lower inflation”.

Another factor is the widespread risk-aversion present among all categories of the French population (under 40s, 40-60 year olds and the over 60s). The obstacles are seen as numerous – transactions considered overly complicated, particular expertise, workings of the market and operators’ practices – without forgetting the factors of uncertainty that continue to weigh on French households’ decision-making – economic slowdown, US-China trade tension, Brexit, Italian budget, psychological impact of income-tax deduction at source… The issue “will be to reconcile those in the mid- and upper middle wealth categories with the idea of choosing riskier investments, particularly in equities, so as to diversify their assets and prepare the future”, sums up Alain Tourdjman.