The interest rate for plans d'épargne-logement (PEL) is set to drop by half a point to 1.75% for accounts opened starting January 1, 2025, as reported by Le Journal officiel on December 18. This significant change marks the first reduction since the rate was lowered from 1.50% to 1% back in August 2016. Over the years, the rate has been adjusted upwards, reaching 2.25% for accounts opened in 2024 and 2% for those initiated in 2023.
The PEL is a regulated savings product aimed primarily at helping individuals finance real estate projects. Its interest rate is fixed upon account opening and remains unchanged for the life of the account. With this new rate, the attractiveness of the PEL for new savers is surely diminished, particularly compared to other savings products such as the Livret A, which is set to remain at 3% until February 2025.
According to Philippe Crevel, director of the Cercle de l’Épargne, the rate adjustment reflects the significant drop in the swap rates—interest rates on financial swap contracts—used to calculate the PEL rate. "Le taux d'intérêt nominal annuel de rémunération des plans d'épargne-logement est fixé compte tenu de l'évolution des taux d'intérêt swap," Crevel noted, highlighting the intrinsic link between market rates and the PEL returns.
For prospective PEL account holders, the new interest rate means they will earn just 1.75% gross, translating to a net yield of approximately 1.225% post-tax, especially considering the flat tax applied on earnings since the 2018 reforms. This net return is considerably lower than the anticipated inflation rate of 1.8% for 2025, which could effectively render the PEL less beneficial as a wealth-preserving vehicle.
While existing plans maintain higher rates, the new PEL interest becomes less favorable over time. The financial constraints tied to the PEL—an initial deposit of 225 euros and annual minimum contributions of 540 euros, up to 61,200 euros—become disheartening for many households. The investment vehicle is saddled with restrictions and slow returns, potentially pushing individuals to look elsewhere.
Nevertheless, the PEL does retain one competitive edge: the borrowing rates tied to it are also set to decrease. The loan rate, linked to the PEL interest plus 1.2 points, will drop from 3.45% to 2.95%. This slight decrease may provide some incentive for those who wish to pursue homeownership through affordable borrowing options.
Critics argue about the PEL's reduced role during challenging times for the housing market. Philippe Crevel cautions, "Ce produit censé faciliter l'acquisition de la résidence principale ne joue plus réellement son rôle." This sentiment resonates as the PEL’s function is under scrutiny, particularly as real estate continues to pose challenges.
Statistics underline the waning popularity of the PEL. The total savings held under this plan dipped to 224 billion euros as of October 2024, the lowest figure since April 2015, and well below the peak of 291 billion euros reached two years earlier. This decline reflects not only the falling interest rates but also perhaps changing priorities among savers.
The PEL's capacity to facilitate home purchases may not be enough to lure new investors, especially when compared with broader investment opportunities available today. Other savings accounts, stocks, and investment funds may well provide more lucrative, flexible options, enticing potential savers away from this traditional route.
Looking toward the future, potential PEL holders must weigh the immediate lower returns against the prospects of acquiring favorable loan terms if the economy shifts. Although the PEL begins to appear like an archaic tool with limited appeal, it still provides options particularly for long-term financial planning within the housing sector.
Overall, the downward adjustment of the PEL interest rate signifies more than just numerical change; it may well redefine its relevance for the average French household against the backdrop of fluctuated economic landscapes.
