The Return of Cash Management and French Bank Products for Americans
When interest rates were low, people often paid little attention to the return their were getting on their cash. The money could have been simply put into the mattress as interest rates were so low that it didn’t really matter. But the times have changed and rates are rising both in France and in safe US government treasury products which means leaving high cash balances in the checking account no longer makes much sense. Further, with the recent return free risk of stocks and bonds, cash has been one of the best investments. Recently we have been earning between 4.5% and 5% in US treasury bills (unlimited amounts but denominated in US dollars), and now the French government has a new savings product called, “Livret d’épargne populaire (LEP)” which is fully compatible for US persons and effective February 1st will offer an interest rate of 6.1%, with no constraints, meaning you can take money out at any time without penalty and these is no limit to the time of investment. There is a limit of 7.700€.
When the Federal Reserve and other central banks were pumping money into the economy, banks were flooded with deposits that they couldn’t even lend. Now, with money much scarcer, banks are having the opposite problem, and for those trying to get a mortgage today in France, you will know how hard it has become. This is one of the prime reasons. The government printing presses have stopped and funding for banks has become much tighter.
For reference, the French bank savings products are:
Le Livret A – presently earning 2%, it has a maximum 22.950€
Le Livret de développement durable et solidaire (LDDS) – This product offers the same rate as the Livret A, but has French tax advantages. As an American, this normally means that instead of paying taxes in France, you just pay them in the USA. So, the product is not recommended for US persons.
Le plan d’épargne en actions (PEA) – This is not really a short term cash management product, but it can be interesting for those who wish to invest in European stocks. It is important to only invest in individual stocks and bonds and not be enticed into a French product such as a mutual fund or other as they will be considered by the US as PFICs, and very heavily taxed in the US. European stocks have not exactly been stellar performers in the recent decade, but of course, that could change. There is a limit of 150,000€ as an investment.
Le plan d’épargne retraite (PER) – This is a new type of French pension plan which does appear to meet the qualifications as a retirement plan for US tax purposes. The key to this plan is that you cannot take money out until you retire.
L’assurance vie – a very popular form of tax beneficial savings for French citizens, but not for Americans. There is no tax advantages for US persons and this product should be avoided. You will have a huge headache keeping track manually of what you need for your tax returns.
15 January 2023