Compare in detail and find the best option for your long-term investment strategy
In the world of investing, the choice between a Plan d'Épargne en Actions (PEA) and a Compte-Titres Ordinaire (CTO) can have a significant impact on your returns and tax strategy. Each option presents unique features that can adapt differently to your financial goals.
This comprehensive guide will help you understand the nuances of each account, their respective advantages, and how they can be integrated into your overall investment strategy. Whether you're a beginner or an experienced investor, this comparison will provide you with the necessary information to make an informed decision.
The Plan d'Épargne en Actions is a French tax wrapper created to encourage investment in European companies. It allows investments in stocks of companies in the European Union and the European Economic Area, as well as certain eligible mutual funds.
Tax benefits: The main advantage of the PEA lies in its attractive taxation. After a 5-year holding period, capital gains and dividends are only subject to social contributions of 17.2%, without additional income tax. This feature makes it a powerful tool for long-term investment.
European diversification: The PEA offers exposure to European markets, allowing portfolio diversification while benefiting from the growth of companies in the Eurozone.
Withdrawal flexibility: After 5 years, partial withdrawals can be made without closing the plan, offering considerable flexibility in managing your investments.
Contribution ceiling: The PEA is limited to a contribution ceiling of €150,000 (or €225,000 for a PEA-PME), which can be restrictive for investors with larger capital.
Limited investment universe: The PEA is restricted to European stocks and eligible funds, which excludes investment opportunities outside Europe, particularly in American or emerging markets.
Time constraints: Tax benefits are fully realized only after 5 years of holding. Withdrawals before this period can lead to the closure of the plan and the loss of tax advantages.
The Compte-Titres Ordinaire is a standard investment account that allows buying and selling a wide range of financial instruments without the geographical restrictions or specific tax advantages of the PEA.
Global diversification: The CTO offers total freedom in investment choices, allowing access to global markets, including American stocks, emerging markets, and a variety of other financial products.
No ceiling: Unlike the PEA, there is no limit to the amount you can invest in a CTO, making it suitable for investors with large capital.
Withdrawal flexibility: You can withdraw funds at any time without time constraints, offering greater liquidity for your investments.
Less advantageous taxation: Capital gains realized on a CTO are subject to a flat tax of 30% (or the progressive income tax scale), which is less advantageous than the PEA tax regime after 5 years.
Tax complexity: The tax management of a CTO can be more complex, particularly regarding the declaration of capital gains and losses.
The major difference between PEA and CTO lies in their tax treatment. For the PEA, after 5 years of holding, you only pay 17.2% of social contributions on capital gains and dividends. For the CTO, you are subject to a flat tax of 30% (12.8% income tax + 17.2% social contributions) or the progressive income tax scale if it is more advantageous.
This difference can have a significant impact on your long-term returns. For example, for a capital gain of €10,000, you would pay €1,720 in taxes with a PEA (after 5 years), compared to €3,000 with a CTO.
However, the CTO offers the possibility of deducting capital losses from capital gains over a period of 10 years, which can be advantageous in certain investment strategies.
PEA: Ideal for a long-term investment strategy focused on European markets. It is particularly suitable for investors seeking to benefit from the growth of European companies while optimizing their tax situation.
CTO: Suitable for a global diversification strategy or for investors who want access to a wider range of financial instruments. It is also preferable for those who need more flexibility in withdrawals.
An optimal strategy could combine both types of accounts: using the PEA for long-term European investments, and the CTO for diversification in international markets or for more specific strategies.
At leFullStack, we strongly recommend Boursobank for opening a PEA. This online bank stands out for several aspects that make it a wise choice for investors:
Competitive fees: Boursobank offers some of the lowest fees in the market, allowing you to maximize your returns over the long term. Brokerage fees are particularly advantageous, especially for active investors.
Intuitive interface: Boursobank's trading platform is both powerful and easy to use, making it accessible to beginners while offering advanced tools for experienced investors.
Open a PEA with Boursobank and benefit from a €220 bonus upon opening
For a Compte-Titres Ordinaire, our choice falls on TradeRepublic. This modern platform offers several significant advantages:
Low transaction fees: TradeRepublic stands out for its extremely competitive transaction fees, which is crucial for optimizing your portfolio performance, especially if you make frequent transactions.
Attractive interest rate: A major advantage of TradeRepublic is the 3% interest rate offered on your cash balance up to €50,000. Interest is calculated daily and paid monthly, offering an interesting return on your liquid funds while waiting for investment.
Open an account with TradeRepublic and enjoy the welcome bonus
Yes, absolutely. It is often recommended to haveboth types of accounts to benefit from the advantages of each and optimally diversify your investments.
For a beginner who wants to invest long-term, the PEA can be a good choice due to its tax advantages. However, if you want more flexibility and access to global markets, a CTO might be more appropriate. The ideal is to start by evaluating your investment goals and risk tolerance.
On a PEA, dividends are reinvested without immediate taxation and benefit from the same advantageous tax treatment as capital gains after 5 years. On a CTO, dividends are subject to the 30% flat tax or the progressive income tax scale, according to your choice.
The choice between a PEA and a CTO depends on your investment objectives, time horizon, and tax strategy. The PEA offers significant tax advantages for long-term investments in European markets, while the CTO offers greater flexibility and access to global markets.
For many investors, combining both types of accounts can be the most effective strategy. Use the PEA for your long-term European investments and the CTO to diversify your portfolio with international assets or financial products not eligible for the PEA.
Don't forget that the choice of platform is just as important as the type of account. Platforms like Boursobank for the PEA and TradeRepublic for the CTO offer advantageous conditions that can significantly impact your long-term returns. Take the time to compare offers and choose the one that best suits your needs and investor profile.
Ilane Lopez
Founder / CTO
