According to the latest figures from the Banque de France, a combined total of more than €500billion was sitting in people’s current accounts in January, gaining little or no interest.
When it comes to saving, too many people opt for what is familiar.
Expatriates are no exception.
Although their life is now in France, some of their money often gets left behind in their former country of residence.
This avoids the uncomfortable reality that their world, including what works for them financially, has now changed.
Such thinking, however, can be very costly. Not only might they be missing out on better savings incentives, it also creates complexity.
In some cases, people might also, unwittingly, be breaking the law if they forget to declare the existence of their foreign accounts or any income accruing in them.
So what are the main savings options for residents of France?
1. Livret A
This is a risk-free, government-regulated bank account offering a fixed interest rate.
It is available to all residents of France. All of the main French banks offer these accounts.
You can withdraw funds at any time, without penalties or fees.
Moreover, the account is free of income tax and social charges.
The interest rate is relatively low (currently 3%), which means that your savings might not keep up with inflation.
There is also a cap on how much you can deposit – €22,950 per person.
2. LDDS (Livret de développement durable et solidaire)
This is another government-regulated savings account, much like the Livret A, and so is free of income tax and social charges.
It offers a fixed interest rate (currently also 3%) and is available to all residents of France.
The main advantage of a LDDS is its focus on sustainable development, which means that your savings should support environmentally friendly projects.
The deposit limit is €12,000 per person.
3. LEP (Livret d’épargne populaire)
This is aimed at households with limited income and has a fairly low ceiling in terms of the amount that can be saved.
Currently, a married (or Pacs) couple with a maximum income of €32,821 can only deposit up to €7,700.
This may sound restrictive, but there is a good reason.
It pays, as of February 2023, interest of 6.1%.
For those who qualify, it makes sense to use this for any spare cash.
Again, the account is exempt from income tax and social contributions.
Make the most of savings accounts before investing
Between the Livret A, LDDS and LEP, a saver may hold a significant amount of cash, receiving reasonable rates and paying no taxes or social charges.
They make sense for all savers, and we recommend clients make the most of such accounts before looking at market-based investments.
We all need to keep some cash aside for unforeseen emergencies.
Beyond cash, however, what other options exist?
4. PEA (Plan d’épargne en actions)
A PEA allows you to invest in a wide range of securities, including stocks, bonds and collective investment funds.
The main advantage of a PEA is its tax benefits.
The gains made from PEA investments are income tax-free after a holding period of five years. Any access within five years tends to lead to immediate closure, but it becomes more flexible after this period.
Bear in mind, however, that ‘income tax-free’ does not mean ‘social charge-free’, so 17.2% still needs to be factored in.
Also, not everyone wants to go all-in on the stock market, preferring some extra security using cash and guaranteed funds.
There are no advantages in terms of succession law, which is worth considering when capital becomes significant.
In addition, there is a cap on how much you can invest in a PEA – €150,000 per individual.
Finally, PEA investments are subject to market risk, which means the value of your investments can fluctuate and even decline.
5. Assurance vie
I could spend a great deal of time discussing the assurance vie as it is easily one of the most popular investment structures in France.
It is much like a life assurance bond (ie. an investment wrapper) with almost no relevance to life assurance but so-named for historic reasons.
Its popularity is largely due to its flexibility, with no upper limits on investment, and significant advantages for income tax, social charges and inheritance tax.
It is also exempt from capital gains tax and enables investors to get around French succession laws.
Like the PEA described earlier, it can be used to invest in collective market-based funds and bonds.
However, it can also access guaranteed funds and hold cash, permitting greater flexibility for efficient financial planning.
International Assurance Vies available
Unlike the other options we have covered in this article, it is possible to have international versions with the same tax benefits.
This means you can access different currencies, have paperwork in different languages and it can easily move with you, should you ever leave France.
The assurance vie is best described as tax-efficient rather than tax-free.
However, if we compare the tax position against a PEA over 10 years, an assurance vie tends to come out better because it mitigates the effect of social charges. This is not the case with a PEA.
For these reasons, the international assurance vie tends to be very popular with expatriates in France.
Of course, there are many more options than the five listed here.
To help decide which one – or mix – is right for you, seek professional advice from a French-qualified source who understands the international perspective.