PEA or security account in 2024: which one to choose?

This question arises for many savers who want diversify their investments beyond traditional banking products (passbook A, life insurance, etc.) which now offer very low or even negative returns once inflation is taken into account.

Investing in the stock market via a PEA or a securities account may lead to higher returns in the long term, but it also involves more risks. It is therefore essential to fully understand the functioning and specificities of each device before starting out.

This article introduces you to a detailed comparison of the PEA and the ordinary securities account, their respective pros and cons, as well as practical advice to help you choose the best solution based on your profile and goals.

Points to remember
- The PEA and the ordinary security account are two envelopes for investing in the stock market, each with its advantages and disadvantages.

- The PEA offers tax advantages after 5 years of ownership, but is limited to investments in European companies.

- The ordinary security account offers great flexibility in terms of types of investments and geographical areas, but without tax advantages.

Definitions and basic principles

What is a PEA?

The Stock Savings Plan (PEA) Is a fiscal envelope allowinginvest in the stock market while benefiting fromtax benefits attractive after a minimum of 5 years of holding the shares.

Concretely, the PEA is a Securities account on which you can house European shares, ETFs (trackers), Fund units invested in shares, etc. The PEA ceiling is €150,000 in payments.

The big advantage of PEA is its advantageous taxation after 5 years: capital gains and dividends received are exempt from income tax and social security contributions.

What is an ordinary security account?

The ordinary securities account (also called CTO) is the reference account for invest in the stock market. Unlike a PEA, a securities account does not offer no tax benefits : realized capital gains are taxed at 30% via the single lump-sum levy (PFU) or, optionally, at the progressive IR scale.

The CTO allowsinvest in absolutely all financial securities (shares, bonds, ETFs...) and in all geographic areas. It is therefore more flexible but less fiscally advantageous than the PEA.

There is no no ceiling for an ordinary securities account. You can hold as many as you want, at various financial intermediaries.

Comparison of the two devices

When it comes to choosing between a PEA and an ordinary security account to invest in the stock market in 2024, several criteria must be taken into account. Here is a detailed comparison of the two devices.

To make it easier to understand the differences between the PEA and the ordinary security account, here is a summary table of the key information:

Criteria PEA ordinary title accountPossible types of investmentsEuropean shares, eligible ETFs, investment fundsShares, bonds, ETFs, derivatives, etc., without geographical restrictionPayment limits€150,000 ceiling No payment limitsTaxationIncome tax exemption after 5 years (excluding social security contributions) Taxation of earnings at 30% via the PFU or at the progressive IRflexibility and diversity of InvestmentsLess flexible, limited to European securitiesMaximum flexibility, wider geographical diversificationZones geographical locations of placementEuropean area onlyGlobal, unrestricted

Possible types of investments

With a PEA, you can invest in European equities, of ETFs eligible for the PEA, and some investment funds. This includes shares of companies listed on European stock exchanges and shares of companies headquartered in the European Economic Area (EEA) under certain conditions.

The ordinary security account offers greater freedom since it allows you to invest in all types of financial securities : stocks from around the world, bonds, ETFs, derivatives, and more. There are no geographical restrictions or the nature of the titles.

Payout limits

The PEA has a payout limit of €150,000, which limits the amount you can invest. On the other hand, the ordinary security account does not have no payment limit, so you can invest as much as you want.

Taxation

Taxation is one of the main advantages of a PEA. After 5 years, the gains (capital gains and dividends) are exempt from income tax, although social security contributions remain due. On the other hand, gains made on an ordinary security account are subject to single lump-sum debit (PFU) by 30%, or to the progressive income tax scale if that is more favorable.

Flexibility and diversity of investments

The PEA is less flexible than the ordinary security account because it is limited to European securities and to a payment limit. However, it allows for a certain diversification within Europe. The ordinary security account, on the other hand, offers a maximum flexibility and allows a geographic diversification wider.

Geographical areas of investment

The PEA is restricted to investments in the European zone, while the ordinary security account allows you to invest without geographical restrictions, thus offering the possibility of accessing global markets and further diversifying investments.

In summary, the choice between a PEA and an ordinary security account will depend on your investment goals, your appetite for risk, your investment horizon, and your sensitivity to taxation. For more information on types of investment and supports for investing in the stock market, you can consult this detailed article.

Advantages and disadvantages of PEA

The Share Savings Plan (PEA) is an investment device that offers many advantages, but also has some limitations. Here is an overview of the main pros and cons of PEA.

Benefits of PEA

1. Attractive taxation : The PEA benefits from an income tax exemption after 5 years, which makes it a particularly attractive investment tool for long-term investors.
2. Diversity of investments : The PEA makes it possible to invest in a wide range of securities, in particular shares, investment certificates, shares in SARL and shares in collective investment organizations (UCITS, Sicavs, etc.).
3. Easy to open : Opening a PEA is relatively simple and is reserved for French tax residents. A French tax household can carry out up to 8 PEAs, which offers great flexibility.

Disadvantages and limitations of PEA

1. Payout limits : The PEA is subject to a payment ceiling of €150,000, which may restrict investment capacity for some investors.
2. Geographic restrictions : Companies in which you can invest with a PEA must be domiciled in Europe, even if this constraint has been relaxed.
3. Risk of loss : Like any equity investment, PEA is subject to market volatility. It is therefore necessary to be ready to accept a certain level of risk.
4. Closure in case of early withdrawal : Any withdrawal made within the first 5 years of the plan results in the closure of the PEA and the loss of tax benefits, except for exceptions allowed by the Pacte law.

Advantages and disadvantages of the ordinary security account

The ordinary security account (CTO) is another investment instrument that offers great flexibility and a variety of choices for investors. However, it also has disadvantages that are important to take into account.

Benefits of an ordinary security account

1. Diversity of investments : The CTO offers a wide range of investments. It allows you to invest in stocks from around the world, bonds, investment funds, trackers (ETFs) and even derivatives. This diversity offers investors the opportunity to diversify their portfolio and spread risks.
2. No payment limit : Unlike PEA, the CTO is not capped. You can invest the amounts you want there without limits. This can be particularly interesting for investors who have a large amount of capital to invest.
3. No geographic constraints : The CTO allows you to invest in shares from all over the world, which is not the case with PEA, which is limited to European stocks. This offers greater flexibility and allows access to foreign markets.

Disadvantages and limitations of the ordinary security account

1. Less favourable taxation : The main disadvantage of the CTO is its taxation. Unlike the PEA, the CTO does not benefit from tax advantages. Earnings are taxed at 30% or at the income tax rate. This can be a significant burden for investors who are making significant gains.
2. Higher risk : The CTO allows you to invest in derivatives, which are highly speculative and potentially dangerous instruments for an individual investor. It is therefore important to fully understand the risks associated with these products before using them.

In conclusion, the choice between a PEA and a CTO depends on several factors, including your risk tolerance, your investment horizon and your financial goals. It is therefore important to fully understand the characteristics, advantages and disadvantages of each device before making your choice.

For more information on the different types of investments and supports for investing in the stock market, you can consult this article on types of investment.

How do I open a PEA or an ordinary security account?

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Opening a PEA or an ordinary security account is a relatively simple process that can be done at various financial institutions, such as traditional banks or online banks and brokers.

Steps to follow

For Open a PEA, you must be a French tax resident and not hold another PEA. You can open a PEA in a traditional bank or online. The process is generally quick and can often be done entirely online.

For open an ordinary security account, there are no tax residency requirements or limitations on the number of accounts you can hold. As with the PEA, the opening can be done in a traditional bank or online, and often in a dematerialized way.

Required documents

The documents required to open a PEA or an ordinary security account are generally the following:

• A valid identity document (identity card, passport)
• A recent proof of residence (energy bill, tax notice)
• A RIB (Bank Identity Statement) for transfers and withdrawals
• A questionnaire to assess your investment experience, financial situation and investment goals. This document is important because it allows the financial institution to assess whether the products offered are suitable for your profile.

It is recommended that you choose an institution that offers competitive fees, such as reasonable brokerage fees, few or no custody fees, and moderate transfer fees. Online banks are often more competitive in this respect.

Special cases

There are variants of the PEA that are aimed at specific audiences: the PEA PME and the PEA Jeunes. These two types of PEA have particular characteristics that distinguish them from conventional PEA.

PEA PME

The PEA PME is an equity savings plan dedicated to investments in small and medium-sized enterprises (SMEs) and mid-sized companies (ETI). It was created to encourage investment in these businesses, which are often riskier but can offer the potential for higher returns. The payment limit on a PEA PME is 225,000 euros, which is added to the ceiling of 150,000 euros for a conventional PEA. It is possible to have a classic PEA and a PEA PME at the same time.

PEA Jeunes

The PEA Jeunes is a variant of the PEA intended for young people aged 18 to 25 who are attached to their parents' tax household. It has a payment ceiling of 20,000 euros. At the age of 25, PEA Jeunes is transformed into classic PEA. It is a great way for young adults to start investing in the stock market with favourable taxation.

It is important to note that these two types of PEAs follow the same operating and taxation rules as the classic PEA. They simply offer additional options for investing in the stock market.

Tips for properly managing your PEA and your ordinary security account

Investment strategies

Managing your PEA or ordinary security account requires a well-defined investment strategy. It is essential to diversify your investments to dilute the risk across different asset classes whose performances are maximally uncorrelated.

For the PEA, prefer European shares, taking into account the performance of companies, their sector of activity and their growth potential. For the ordinary security account, you have the option of investing in a wider range of securities, including international equities, bonds and investment funds.

It is also recommended that you regularly reassess your portfolio and adjust your strategy based on market developments and your financial goals.

Mistakes to avoid

One of the most common mistakes when it comes to investing is not having a long-term vision. It is important to understand that investing in the stock market is a long-term commitment, especially in the case of a PEA where the first withdrawal of money should not take place before the fifth anniversary of the plan.

Another common mistake is not diversifying your portfolio sufficiently. Putting all your eggs in one basket can be risky. It is therefore essential to spread your investments across different types of investments.

Finally, it is crucial not to let your emotions get the best of you. Market fluctuations can be stressful at times, but it's important to stay calm and not make hasty decisions based on fear or greed.

By following these tips, you will be in a position to effectively manage your PEA or ordinary security account and maximize your returns over the long term.

In conclusion, the choice between a PEA and an ordinary security account depends on several factors, including your investment goals, your risk tolerance, your investment horizon and your tax situation.

The PEA offers significant tax advantages, especially if you plan to keep your investments for at least five years. It is also capped in terms of payouts, which can be an advantage for investors looking to limit their exposure to risk. However, PEA is limited to investments in European companies, which may restrict your ability to diversify your portfolio.

On the other hand, the ordinary security account offers greater flexibility in terms of types of investments and geographical areas. There are no payout limits and you can invest in businesses around the world. However, the ordinary security account does not offer the same tax advantages as the PEA.

The choice between a PEA and an ordinary security account depends on your individual situation. It may be a good idea to consult a financial advisor to help you make this decision. Remember that investing involves risk and that you should always use caution and due diligence when making investment decisions.