5 Short and Long Term Savings Plans in France

5 Short and Long Term Savings Plans in France

by | May 30, 2023

According to recent data from the Banque de France indicates that in January this year, over €500 billion was held collectively in people’s current accounts, accruing minimal or no interest.

When it comes to saving, this is a common trend as many savers opt for what is familiar to them, and expatriates are no exception to this type of behaviour.

Despite relocating and settling in France, many expats continue to manage their finances in their former country of residence. This approach helps them avoid confronting the fact that their financial needs and strategies have shifted along with their move.

However, adhering to this mindset can lead to significant drawbacks. Not only are expats potentially missing out on more lucrative savings opportunities, but they also face increased financial complexity. In some situations, they may even be unknowingly breaking the law. So, with that, let’s look at some short and long-term saving plans in France that may be helpful to expats and French residents alike.

Long Term Savings Plans in France

So what are the main savings options for residents of France?

1. Livret A

Livret A is a secure, government-regulated savings account offered by all major French banks, available to all residents in France. It provides a fixed interest rate and allows for penalty-free withdrawals at any time, without incurring additional fees. Additionally, the account is exempt from income tax and social charges.

However, the interest rate is relatively low (currently at 3%), which may result in your savings not keeping pace with inflation. Furthermore, there is a maximum deposit limit of €22,950 per person.

2. LDDS (Livret de développement durable et solidaire)

LDDS is a government-regulated savings account similar to Livret A, offering tax-free interest and exemption from social charges. With a fixed interest rate (currently also at 3%), it is available to all residents in France.

The main advantage of LDDS lies in its commitment to sustainable development, ensuring that your savings contribute to environmentally friendly projects.

LDDS’s have a deposit limit of €12,000 per person.

3. LEP (Livret d’épargne populaire)

LEP (Livret d’Épargne Populaire) is specifically designed for households with a limited ability to save and imposes a relatively low maximum deposit limit.

At present, a married (or PACS) couple with an income not exceeding €32,821 can deposit a maximum of €7,700. While may seem restrictive, there is a good reason for this. As of February 2023, LEP offers an interest rate of 6.1%. For those who are eligible, it makes perfect sense to put aside any spare cash to an LEP account.

Additionally, like other government-regulated savings accounts, LEP is exempt from income tax and social contributions.

Make the most of savings accounts before investing

By using savings accounts like Livret A, LDDS, and LEP, savers can hold onto substantial amounts of cash, while receiving reasonable interest rates without tax or social charge obligations. These accounts are beneficial for all savers, and we would recommend clients make full use of them before considering market-based investments.

It is essential to maintain some good cash reserves for unexpected emergencies. However, what other alternatives are available beyond cash?

4. PEA (Plan d’épargne en actions)

A PEA enables investors to diversify their portfolio with various securities, including stocks, bonds, and collective investment funds.

The primary advantage of PEA lies in its tax benefits. After a holding period of five years, gains from PEA investments are exempt from income tax. Accessing funds within the first five years typically results in immediate account closure, but flexibility increases after this period.

Bear in mind that ‘income tax-free’ does not equate to ‘social charge-free,’ so remember to factor in the 17.2% social charges.

Additionally, some investors may prefer a more conservative approach, opting for cash and guaranteed funds rather than fully committing to the stock market.

It is worth noting that there are no succession law advantages when capital becomes significant.

Furthermore, PEA investments have a maximum limit of €150,000 per person.

Lastly, it is also important that you are aware that PEA investments are subject to market risks, which means the value of your investments can fluctuate or even decrease.

5. Assurance vie

Assurance vie is a popular investment structure in France, and one that I could spend a great deal of time discussing.

An assurance vie is much like a life assurance bond in that it is an investment wrapper but with no relevance to life assurance. The popularity of assurance vie’s stem from its flexibility, lack of investment limits, and considerable advantages in income tax, social charges, and inheritance tax..

Moreover, assurance vie is exempt from capital gains tax and allows investors to avoid French succession laws. Similar to the previously mentioned PEA, it can be used for investments in collective market-based funds and bonds. However, assurance vie also offers access to guaranteed funds and cash holdings, providing greater flexibility for effective financial planning.

International Assurance Vies available

Unlike the other options we have discussed in this article, it is possible to have international versions of assurance vie that maintain the same tax benefits. This enables access to various currencies, multilingual paperwork, and can be easy to move should you leave France.

While best described as tax-efficient rather than tax-free, assurance vie often outperforms PEA in terms of tax positions over a 10-year period, as it mitigates the impact of social charges, a benefit not found in PEA. Consequently, international assurance vie is particularly popular among expats in France.

Naturally, there are numerous other alternatives beyond the five saving options listed here. To determine the most suitable choice or combination for your needs, it is always advisable to seek professional advice from a French-qualified source who understands the international perspective.

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 Disclaimer: The information in the above article concerning taxation is based upon our understanding of the taxation laws and practises in France at the time of writing. These taxation rules are subject to change and as such, Kentingtons cannot be held responsible for any inaccuracies that may occur. The information in this article does not constitute personal advice. Individuals should seek personalised advice in relation to their own situation.

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