France cuts rate on popular tax-free savings account for 2nd time in 2013

PARIS, July 18 Thu Jul 18, 2013 6:31am EDT

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PARIS, July 18 (Reuters) - France on Thursday cut the interest rate on hugely popular tax-free savings accounts for the second time this year in view of falling inflation, but limited the reduction to protect savers' purchasing power.

The politically sensitive cut in returns on the accounts comes as consumer morale sits at record lows, jobless numbers at all-time highs and as the economy is stagnating.

Some 63.3 million of the so-called Livret A accounts were held in France at the end of last year - almost the same number as the population, although some are thought to hold more than one account illegally.

The Bank of France had recommended that the interest rate paid on so-called Livret A accounts be cut from 1.75 percent to 1.25 percent as of Aug. 1. Strictly applying the rules for calculating the rate based on inflation would have meant a cut to 1.0 percent.

"The measure we are taking today aims to support the buying power of people on low incomes," Finance Minister Pierre Moscovici told journalists.

The central bank and commercial banks say the high-interest Livret A accounts discourage savers from buying stocks or putting their money into other investments that could help finance businesses.

Retail banks have to hand most of the cash deposited in Livret A over to state lender Caisse des Depots for investment in public projects, meaning they cannot count on it to beef up their deposit bases and make more loans.

Deposits in the tax-free accounts hit a record high 262.1 billion euros ($343 billion) in May after the government raised the cap on the accounts to 22,950 euros in January. ($1 = 0.7637 euros) (Reporting by Emmanuel Jarry; Writing by Ingrid Melander; Editing by Leigh Thomas)

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