THE DEUX-SÈVRES MONTHLY
French Savings & Investments
by David Hardy
Bank Accounts French banks offer various accounts from the straightforward current account ‘Compte Courant’, to instant access savings account ‘Compte sur Livret’ and fixed term deposits ‘Compte à Terme’, offering better interest rates over a defined period. For French residents, there are also various tax-‐free bank deposit accounts. The most common are the ‘Livret A’ and the ‘Livret de Développement Durable’ (LDD). The maximum deposit per person is €22,950 for the ‘Livret A’ and €12,000 for the ‘LDD’. The general conditions of the accounts are the same and are regulated by the government. Interest is free of all taxation and the annual interest rate is currently 1.75%. Rates are generally reviewed on a six-‐monthly basis. For low-‐taxpayers, the ‘Livret d’Epargne Populaire’ (LEP) offers an interest rate of 2.25% for savings limited to deposits of €7,700 each. To qualify, you must prove, via a tax certificate, you pay less than €769 of income tax (in 2012) in France. The ‘Plan d’Epargne Logement’ (PEL) is a four year savings plan, aimed at saving for house purchase and home improvement. Whilst you are saving the interest earned is tax-‐free. If the sum is then used for the above purpose and has been blocked for four years, it can be withdrawn free of income tax but will be subject to ‘social taxes’.
To benefit from the policy’s preferential tax treatment the insurance company provides the ‘wrapper’, but allows the investors to choose the investments to be held within this, either from a list of funds, or, for larger sums (generally €500,000+), a discretionary investment manager can be appointed to run a bespoke portfolio. All French insurance companies also offer access to their “Fonds en Euros”. This basically means that the insurance company invests as they see fit but, in return, they guarantee that the investment cannot drop in value and must go up by a certain amount each year. At the end of each year they calculate how much they have made and distribute the investors’ shares of the ‘profits’ as interest. These investments are obliged to be very conservative, due to the level of guarantees offered and are only making, therefore, about 3% a year at present, due to low interest rates.
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Life Assurance A very popular form of investment for French residents is the ‘Contrat d’ Assurance Vie’, a Life Assurance Investment Bond (investments with a Life Assurance company). Their popularity is because of the significant inheritance advantages offered, as well as beneficial tax treatment for any growth and/or income generated.
An alternative to the ‘Contrat d’Assurance Vie’ is a ‘Bon de Capitalisation’, Capital Redemption Bond. The basic contract terms are the same for both policies, as is the income and social tax treatment. However, ‘Bons de Capitalisation’ carry no inheritance advantages and the value of the policy on death forms part of your estate. There are two clear advantages of using these policies. Firstly, for wealth tax purposes, the amount that is declared is the initial investment amount (or the current value, if lower). Secondly, a “Bon de Capitalisation” can be gifted during your lifetime or left on death, which could be useful if the aim is to pass on a “family portfolio”.
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