Maybe your bank advisor has recommended to open a PEL (Plan d’Epargne Logement) in France or you have heard some friends talking about it as part of a real estate investment project? Curious about what it is? It is worth it? What are the conditions to apply?
In this blog we will be sharing our understanding on PEL based in our own acquired knowledge and experience as expats living in France. Let’s jump right into the subject…
Table of Contents
What is PEL 'Plan d'épargne logement' in France?
It is a housing saving plan designed for people looking to buy their first home purchase (but not only). The account allows the depositor to earn interest on their savings and receive a fixed-interest loan from the bank for a future home purchase, however the later is optional.
The minimum holding period for such accounts is 4 years. You cannot do any partial withdrawal if you want to keep its benefits in terms of interest rates. However, you can do an early withdrawal any time (it is not blocked).
The interest rate is fix as per the date when opening the account. So you would better open it when interest rates are high 😉
How is a PEL taxed in France?
For recently opened accounts (after 2018) the interests generated are subject to social contribution tax (CSG-CRDS) and Revenue tax (flat tax of 30% or you can opt-in to apply your personal average tax rate – TMI).
Is it worth it to open a PEL account in France?
The government changed PEL conditions after 2018 introducing more constraints and removing some tax benefits.
However, we believe it could be attractive for us to open a PEL account if the interest rates continue raising and if we would like to acquire a home in the future.
An ideal scenario will be to lock a PEL account with a high interest rate (ex.: >4%) and later on inflation drops. Then we will have a savings account with a higher interest rate compared to inflation. Nevertheless, this will be an speculation and it could go the other way around as well.
When can I use my savings within a PEL?
You can withdraw your funds from the PEL account at anytime as it is not blocked, but the account will be closed. You will need to hold it for more than 4 years to be able to request a credit with an advantaged rate or withdraw funds.
Starting from 2023, it is possible to withdraw funds (even before the 4th maturity year) in case you want to invest in your home to upgrade to save energy (some conditions apply).
How much money to put within my PEL?
It will depends on your future plans for this account. If you are saving with the purpose to buy a home in a couple of years time, then you can define your target amount and calculate your monthly contribution.
As example, if you want to save 10 000€ during 24 months, then divide 10000/24 = 416€ per month. The more you can save upfront the best, as you will get a % year interest (credited in January of each year).
At any case, you will need to deposit a min. of 540€ per year, which normally translates into regular deposits of 45€ per month, or 135€ per quarter, or 270€ per semester.
You could make additional deposits as long as you respect the 61 200€ (not considering capitalized interests). Deposits are allowed during 10 years. After that period, the account will earn interest only for 5 more years.
myFrenchMoney tip
If you are saving through a PEL just to take advantage of the high fixed interest rate in the long term, then probably you will not want to get closer to the limit of 61 200€ too soon (before the 10th year anniversary) as the account could be automatically closed by the bank.
Our opinion about PEL account in France
Unfortunately PEL tax advantages are not as good as other savings accounts available in France.
We used to have a PEL during the period 2013 – 2022 just to profit the 2,5% rate. During this period inflation was lower than that, so it helped us preserving our purchasing power.
We closed our PEL last year as interests rates skyrocketed and transferred funds to our ‘livret A‘ instead (3% interest rate). Livret A is tax free in France.
Nevertheless, we still believe PEL savings account could become attractive again when interest rates passes the 3% threshold. It will be a good opportunity to lock a savings account with high and fixed interest rate for long term.
Another point to consider would be the Return / Risk ratio and for PEL is very positive as funds secured by French government.
Finally, it is obvious that you will not become rich openning such kind of account but it could makes sense for a mid-long term project (not necessarily a real estate one) or if you want to minimize your capital risk.
If you want to learn more details about PEL, you can visit the official government site here.
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Bon chance!
Disclaimer
Please remember that we are neither financial nor tax advisors. We are just sharing our best understanding based in our own experience. This blog is for educational purposes only. Do not make investment decisions solely based on what you read in this blog. What works for us, may not for you. Do your own research and look for professional service if required. Read our full disclaimer in the ‘about’ page.
