Understanding the pros and cons of financial products and services is crucial for those seeking to optimize their wealth management strategies in France. In this article we will look into the particularities of French financial products, comparing them with counterparts in the UK and the US across various categories, including banking, investments and pensions.
Each country boasts its own unique array of financial offerings, reflecting not only economic factors but also cultural norms and regulatory frameworks. For example, something that is tax efficient in one country, may not be in another.
Banking and Banking Charges
One of the most noticeable disparities between France, the UK, and the US lies in the realm of bank charges.
In France, banking services often come with a myriad of charges that can catch newcomers off guard. From account maintenance fees to transaction charges, it is customary for banks to levy fees for a wide range of services. Want to check your balance or make a withdrawal? Be prepared to see those fees add up over time. Indeed, banking costs can typically add up to around €300 annually.
Contrastingly, in the UK, banks typically refrain from imposing fees solely for holding an account, offering customers a more cost-effective banking experience. Moreover, many UK banks offer competitive incentives, such as cashback rewards and higher interest-bearing accounts, to attract and retain customers.
Similarly, in the US, while some banks may charge monthly maintenance fees, there are often ways to waive these charges by meeting certain criteria, such as maintaining a minimum balance or setting up direct deposits. Additionally, US banks frequently offer a wide range of digital banking services for free.
In this respect, over the last few years online banks in France have been making significant breakthroughs, taking market share from traditional high street banks; in fact one of them already has over six million clients. These “neobanks” offer not only the convenience of online banking, but often boast zero or significantly lower bank charges compared to the traditional banks.
Assurance Vie and Investment Products
The French assurance vie stands as a distinctive financial ‘wrapper’, renowned for its tax advantages and flexibility. Comparable products in the UK and the US include investment bonds, individual savings accounts (ISAs), and retirement accounts, albeit with differing tax treatments and regulatory frameworks.
Offering a blend of tax advantages and investment flexibility, assurance vie has become a cornerstone of long-term savings and wealth preservation in France. What sets assurance vie apart is its unique feature known as “les fonds en euros” (euro-denominated funds), which provide investors with a guaranteed minimum return, shielding them from market volatility. This stability, coupled with tax benefits, makes assurance vie an attractive option for individuals looking to grow their wealth while minimizing risk.
To complement “les fonds on euros”, the French investment landscape offers a diverse array of options, including mutual funds and low-cost exchange-traded funds (ETFs), catering to investors with varying risk appetites and investment objectives.
Pensions
Pensions play a crucial role in ensuring financial security in retirement, and each country has its own approach to retirement savings.
In France, the pension system is characterized by a mix of public and private schemes, although the state pension scheme predominates, with the French paying compulsory contributions throughout their working lives. The state pension, known as the “retraite de base,” tends to provide retirees with a comfortable income. For salaried workers, for example, the rate is determined based on the average of your best 25 years of earned income; then the rate of 50% is applied to this average annual salary to obtain your full basic pension amount.. This may be supplemented by additional pension plans provided by employers, known as “retraites complémentaires,”.
In comparison, the UK state pension is widely considered as insufficient. For this reason the UK has implemented ‘auto-enrollment’, a policy requiring employers to automatically enroll eligible workers into a workplace pension scheme. This initiative has been successful in increasing pension participation rates and encouraging retirement savings among workers. Indeed, the pensions market in the UK is approximately ten times bigger than in France and it is very common for people there to have some type of private pension.
In the US, the pension landscape is dominated by IRAs and 401(k) plans, which allow individuals to save for retirement in a tax-efficient manner. These retirement accounts offer a range of investment options, including mutual funds, target-date funds, and company stock, enabling individuals to build a diversified portfolio tailored to their retirement goals.
Final thoughts about French financial products
To conclude, we note that whilst there may be similarities between the three countries, there are notable differences too!
I would suggest the key takeaway for French residents is that assurance vie is the go-to vehicle for tax efficient long term savings. Every bank in France will offer their own assurance vie, but charges are often opaque, and high! Finally, it is worth noting that assurance vie from other European jurisdictions can be fully compliant in France, as well as, for example, the UK, making these types of assurance vie more compelling for an international person.
By understanding these distinctions, you can make informed decisions about your financial futures with confidence and clarity. Whether saving for retirement, investing for growth, or managing day-to-day finances, the diverse array of financial products available offers opportunities for those well informed to achieve their financial goals and aspirations.
This article was first published in the Connexion, May 2024