In France account managers often offer their costumers that they open a savings account (Livret A as they call) on top of the checking account. From my point of view, those employees seem to have pressure in doing so, since they will ask that every time you meet them if you don't have. The banks even offer gifts to those who do. Given that it does not appear that they will have any chance to recover the money they spend to get customers to open these accounts (there are no fees and they have to pay out the interests, even if very small), why do banks have any interest of offering that? Does the balance on savings accounts in France is subject to different regulations than that on checking accounts, thus they can make more money like that?
asked Nov 19, 2017 at 1:30
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Just a comment as I don't know about France: here in Germany a savings account means for the bank that they can count on having this money long term: if you want to withdraw money you have to give notice in advance (how long is set in the savings contract - could be anywhere from 3 months to several years. E.g. I used to have one with 48 months = 4 years notice period as a kid. This is often combined with allowing small withdrawals without notice, and typically you can withdraw also large amounts but that is subject to a fee and interest loss due to not having given notice x months ago).– cbeleitesCommented Nov 19, 2017 at 16:19
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@cbeleites My manager said that I don't have any notice on my savings account. It works like a checking account except that it is not directly accessible by checks or debit card, the balance must be moved (for free) to the checking account before being used.– Gabriel DiegoCommented Nov 19, 2017 at 16:24
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Aha. I have one account that works similarly (you can put money there from everywhere but withdraw only to a specified account) - this is a money account tied to a shares + bonds depot (not a savings account, though). It may be that those accounts are cheaper in management for the bank as fraud detection is less of an issue (because withdrawals leave the money with you) - but this is pure guesswork.– cbeleitesCommented Nov 19, 2017 at 16:29
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3 Answers
I have worked for BNP (BNP PARIBAS) a french bank.
From my experience it is the easiest sale to make when working for a bank. Because saving is sold as a long term investment your client is not likely to close the account any time soon. From this product on you could open a broker account if the client wants to take more risks ( yhea yet another sale). If the client is very keen on no risks, there are insurance products (they make plenty of money from insurance) or callable investments that you can propose. Retail banking works by attracting a maximum number of people and selling them a maximum amount of product.
To answer you question is it profitable? I am sure it is not ( right now your savings account costs the bank money because of super low rates in the EU). I think it is all about increasing or maintaining market-share that you see some banks offering some cash just for opening an account.
At the moment we have to sell credit cards to people that is where banks make good money.
If you would like me to go more in depth on a specific subject i mentioned here just ask. Hope it helped.
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Hi, thanks for the answer, it was very useful for me. How much does the bank pay you for opening a Livret A? Commented Nov 25, 2017 at 22:05
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nothing again, i would make bonus based on the given numer of sales of a specific product they want to puch that month/week/ quarter. could be home insurance, car insurance (any type of insurance) or credit cards or other types of credit, investment products. anything they sell really. for my boss the livret A was a "Sale' but not seen a core sale as in it would not matter if you sold 50 or 0 to your or his numbers. Commented Nov 26, 2017 at 12:24
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This means that you have to sell as many different products as possible, but the number of sales on each individual product does not matter? Like one Livret A plus one insurance counts more than ten insurances? This should make sense since my account managers (all the different ones I saw) really wanted to open me a Livret A. I guess that this was to increase the diversity on their sales books. Commented Nov 26, 2017 at 12:35
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Livret A is a "Sticky product" once you open it very few people will close it. that means you will be a costumer for a longer period. I guess it is better to sell 10 insurance then one livret and one insurance. Again it does depend on what your account manager needs to sell that week. Livret A and Insurance are all handy products but sometimes there is a sales incentive for the manager to put more effort into selling you a specific product. If I where you I would just ask him if this is the case. As in are you incentivised to sell me this specific product now? Commented Dec 3, 2017 at 9:46
I don't think this is a French thing. It's like this everywhere. Banks always want people to open accounts of every type. A person with a checking account should be easy to sell on a savings account at the same institution.
Given that it does not appear that they will have any chance to recover the money they spend to get customers to open these accounts (there are no fees and they have to pay out the interests, even if very small)
Oh, they recover it. Banks make money by having deposits that they can use to lend out. They do pay interest on deposits, but not as much as they earn on your money. If they persuade you to have a savings account in addition to your checking account, then you might find it convenient and then move your money out of a different institution into their savings account. Or you might stop hoarding it under your mattress. Or whatever. More money in their accounts means more profit for them.
I don't know whether banks make more profit per dollar in savings or checking accounts. I see banks pushing for both. I think they simply view more accounts as a good thing because it can lead to more total savings in their institution. That's how they make money.
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Savings account usually offer a marginally better amount of ROI % but come with restrictions as having to keep a certain amount and above as initial deposit and being bound by a long term commitment where the money should be "locked-in". So yeah for the trade-off in extra percent offered, savings account are a much better deal for the banks.– LeonCommented Nov 20, 2017 at 9:15
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Still, why does the bank wants to keep my balance in the savings instead of the checking account? If I leave in the checking account they don't have to pay interest while in the savings account they pay it (even if little). Besides the commercial costs of opening the savings account makes it even less interesting to the bank to have the trouble of opening one. Commented Nov 20, 2017 at 16:27
The Livret A is a very specific product. It's tax-exempt and would historically not be available through regular banks. Commercial banks can now offer it but they only collect the money on behalf of the Caisse des dépôts (CDC). The CDC then pays interest to the savers and a commission for the bank. The commission is baked into the system, not charged to the customer directly but since the interest rate is set centrally, banks cannot compete on that. So this is risk-free money for them (but on the flip side it does not help them meet capital adequacy requirements). Other savings account or products have different rules.
Another angle to consider is that a livret A was historically very attractive for consumers (and was certainly perceived as such) so that many people would have a checking account at a regular bank and another account at the Caisse d'épargne or the Banque postale just to open a livret A. For commercial banks, the alternative therefore isn't having your money on your checking account vs. your livret A or another savings account, it was having your money on a livret A they administer vs. seeing you run away to another institution. There is also a cap on the livret A and you're not allowed to save more money by opening several of them at different banks.
At the same time banks have been complaining that the decrease of the interest rate (and consequently of their commission) makes the whole scheme a lot less interesting for them. For what it's worth, I recently (re)opened a bank account in France after living abroad for a long time and the customer advisor did not seem particularly interested in pushing a livret A.
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Thanks for the answer. Is the commission of the CDC higher than the potential profit of the balance being available directly to the bank through the checking account? If not, why would the bank want to have the balance in the savings account rather than the checking account? Commented Nov 20, 2017 at 16:30
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@GabrielDiego The commission is based on the interest rate so I would guess that it roughly tracks potential profits but I don't really know. Another part of the equation is that a Livret A was historically very attractive for customers so banks might be trying to keep their money in-house instead of opening a livret A elsewhere (like the Caisse d'épargne, which has been offering them for decades). But banks have been complaining that the lowering of the interest rate makes the whole scheme a lot less interesting for them so maybe they will end up doing exactly what you suggest.– RelaxedCommented Nov 20, 2017 at 16:43
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@GabrielDiego Thanks for your comment in any case, I will try to expand on this in the answer!– RelaxedCommented Nov 20, 2017 at 16:45
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Most banks give a very similar interest rate (peanuts). I would not going to the trouble of opening an account on another bank to get maybe 10€ more per year, if any, on a 10000€ balance. Keeping on the current bank the same balance would yield around 75€ a year, also peanuts, barely above inflation. Commented Nov 20, 2017 at 16:51
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@GabrielDiego Which banks now? Checking accounts in France typically do not pay a low interest, they pay no interest at all! Again, all this seems to result from the retail market as it was a few years ago, that's why I wrote “historically”. Obviously it feels very different with an interest rate at 0.75%...– RelaxedCommented Nov 20, 2017 at 17:04