French banks use a very old-fashioned system when rewarding your savings with interest. Here is a guide on how to save in France and make the most of your money.
If you are planning on moving to France or already live here, this post might be of particular interest to you. You may in fact have already wondered How is interest on savings calculated in France? For others this might be a small walk through the history of banking. This is a guide on how interest on your savings is calculated in the French interest system.I pressing issue for anyone moving to the country of food and wine.
When I arrived in France a few years ago, I knew absolutely nothing about the French interest and tax system. In fact, I came to discover that the system was very different from anything I had come to know. I was used to savings accounts that paid interest on a daily basis.
Most frequent interest systems
In the UK, for instance, I was paid 30 days of interest if I lent my money to the bank for 30 days. And more importantly, I started earning interest the day I paid in the money and stopped earning interest only on the day I withdrew the money. If I was thus to pay 10,000 pounds sterling into my account on the 4th of April and decided that on the 3rd of May that I wanted to withdraw those 10,000 pounds sterling, my money would earn interest from the 3rd until the 4th the following month.
£ 10,000 saved at 3% would hence return £ 24.66 for that 30 day period.
If I took out £ 5,000 half way through the term, the first 15 days would still earn 3% on £ 10,000 and the second 15 days would earn 3% on £ 5,000.
Over the 30 day period my savings would have returned £ 18.49.
So far so good. I anticipated that this would be the case almost everywhere, at least on the same continent. Far from it.
The French interest system
I put all my savings into a 3% savings account with my French bank. As most of us do, I occasionally withdrew money and other times added funds to the account. Something strange happened, however, as I came to realize a few weeks into my life in France.
The accrued interest was far below what I had anticipated. After running the numbers, I phoned my bank to sort out what I thought was a mistake on their part.
I explained to the lady on the other end of the phone line in my best French that somehow this did not seem right and that I should have received a multiple of the interest they had paid. Kindly she looked at my account before, to my utter disbelief, telling me that the numbers were correct.
I asked her to please look into the numbers again, as they seemed way off. However, she remained adamant that their calculations were correct.
It was perplexing.
I decided to run the numbers again only to arrive at the same result. Their numbers were far off from what the interest should have been.
Sherlock Holmesing the French interest system
Something seemed sketchy and it was time for the Sherlock Holmes in me to investigate. I looked more closely into the French interest system and how the interest on savings was calculated.
After going back and forth between French and English sites, I eventually landed on a banking site explaining the very different way of interest calculation in France. The interest, rather than being calculated on a daily basis, is calculated on a biweekly system. A system that only knows one winner: the banks.
In order to get the most out of your savings in France one has to adhere to a number of very strict rules that, even more astonishing to me, even many of my French friends were not entirely certain on.
The system is based on a very old system when interest was still calculated on a biweekly basis for simplicity reasons. Back in the days, long before technology and the help of computers, bankers felt that the simplest way to calculate interest was to look at how much someone held with them in a given period of time. It was obviously easier for banks to calculate interest only twice per month than on a daily basis.
The biweekly interest calculation
And the system prevails. Imagine a saver lent her bank € 1,000. The money is paid into the account on the 31st of December and kept in the account for the entire period between the 1st and 15th of January. The bank would pay her interest on the money she held with them for that particular period.
If, on the 16th, she decided to withdraw the money, the bank would not reward interest for that extra day. Sounds strange? I am with you. Let’s look at the system in more detail:
A bank’s horizon in France is always a 15 day period. Anything taking place outside this period is not considered as an interest earner. So the 16th of January will not earn any interest despite the bank still being allowed to work with your money.
Worse still: If she keeps her €1,000 with the bank until the 14th or even 15th and decided to take out the full amount on the 15th, she would receive not one single cent of interest. Likewise, if she paid in an extra € 1,000 on the 1st or 2nd (or any later date), she would not receive any interest on that extra € 1,000 until the 15th of the month (provided she keeps the money in her account for the entire second period (15-end of month). In other words, her € 1,000 would be entirely unproductive and would only start earning any money as of the second biweekly period of that month.
How to make the French interest system work for you
If you are confused by now, don’t worry, you are not alone. It took me quite some time to figure out when to pay money into my savings account to make the most of my savings.
Another factor complicating the system is that rather than 26 periods (52 weeks divided by 2 week periods) there are only 24 biweekly periods in one calendar year. Banks simply split each month into two periods (1-15 and 16-end of month).
This system is unique in Europe, and maybe even worldwide and savers can only win if they keep their money in their account and leave it in there for a long period of time.
For simplicity’s sake and to make life easier for you if you happen to move to France or keep an account in France, here are the dates when to transfer money in and out:
To earn interest for the period 1-15 of any given month, transfer your money on the last day of the previous month.
To earn interest for the period 16-end of the month of any given month, transfer your money on the 15th of the same month.
To not lose interest for the period 1-15 of any given money, withdraw money on the 16th.
To not lose interest for the period 16-end of the month of any given month, withdraw money on the 1st of the following month.
So here you have it, a journey into a different type of interest system. If you know of any other interest systems, share them in the comment section with the rest of us.