Equity savings account or book-entry account?

Have you thought of which account should be chosen for investment: an equity savings account or book-entry account? Both could be the answer if you want to make use of the benefits of both accounts.

Another important question is when it pays to invest through the book-entry account and when through the equity savings account. The answer can be found in your investment strategy, in other words, how long your investment horizon is, in what investment vehicles you invest and what your investment targets are.

Differences between the equity savings account and the book-entry account?

Equity savings account

  • You can only deposit money, the maximum deposit is 50,000 euros.
  • Traded products: stocks
  • Capital gains tax of 30—34% is payable when you withdraw money
  • Dividends are paid into an equity savings account tax-free and can be re-invested.
  • In the long run, it is worth keeping Finnish dividend shares on your equity savings account.
  • Regarding taxation, it is worth buying only Finnish shares for the account.
  • Capital losses are tax-deductible when you close the account and withdraw funds from it.
  • You can only have one equity savings account.



The equity savings account is the option if you want to reinvest dividends and any possible capital gains. 

Open an equity savings account

Book-entry account

  • No deposit limit. You can transfer shares you already own and ETFs to a book-entry account.
  • Traded products: stocks, funds, ETFs and ETPs.
  • Subject to annual taxation: 30—34% on capital gains and 25.5—28.9% on dividends.
  • Dividends are paid into the account of your choosing.
  • In most cases, tax at source in excess of the Finnish dividend tax rate is taken into account and refunded in Finnish taxation.
  • Capital losses are tax-deductible in annual taxation: the deduction can be transferred to capital gains in the current and subsequent five years.
  • There is no limit on the number of book-entry accounts you can hold.



The book-entry account enables you to diversify effectively and it suits all investors. 

Open a book-entry account

 

Through which account should I invest?

The combination of the equity savings account and book-entry account is often the most functional solution. You can use the equity savings account to buy stocks and the book-entry account to buy stocks, mutual fund units, ETFs and other listed products. This is how you will benefit from both accounts and you can diversify your investments in various investment vehicles on an extensive basis. 

Investment horizon   Book-entry account Equity savings account
Long-term Finnish dividend shares   x
  Finnish growth companies x  
  Foreign dividend shares x  
  Foreign growth companies x  
Short-term Finnish dividend shares   x
  Finnish growth companies   x
  Foreign dividend shares   x
  Foreign growth companies   x

 

The most significant benefit of the equity savings account is that it enables you to make full use of the compound interest effect. When you defer payment of taxes on capital gains and dividends, the taxable portion also accumulates compound interest, increasing the capital invested. It is therefore highly suitable for long-term investment and active investors. Moreover, the ease of using an equity savings account can be more important than benefiting optimally from both account types.

The most significant benefit of the book-entry account is that you can diversify your investments extensively in various investment vehicles without any deposit limit. For dividends, you can also take advantage of a 15% tax exemption. When you calculate gain or loss, you can, if you like, reduce the deemed acquisition cost from the selling price of stocks instead of reducing the purchase price of the stock from it. The deemed acquisition cost in holdings of less than 10 years is 20% and that in holdings of over 10 years 40%.

 

Differences between the equity savings account and the book-entry account in terms of taxation

The majority of the differences between the equity savings account and the book-entry account relates to taxation. Deducting capital losses is one factor that differentiates the accounts from each other.

In the book-entry account, you can deduct capital losses in taxation every year and make use of them for capital gains received during the current year and the following five years. 

In the equity savings account, you can deduct capital losses when the account is closed and the funds are withdrawn from the account. Tax deductions on stocks sold at a loss is thereby postponed to a future date. On the other hand, tax is not levied on capital gains until you withdraw money from the equity savings account.

 

Would you like to have dividends in your account or reinvest them?

One thing that causes investors to wonder relates to dividends. Think about whether you want to have dividends directly in your account or reinvest them.

If you want to have dividends in your account, the book-entry account is a better choice because 15 per cent of dividend income is tax-exempt. If you withdraw some dividend income from the equity savings account, tax will be paid on the full dividend amount.

If you want to reinvest dividends, it is tax-exempt in the equity savings account and you can reinvest the total dividend income benefiting from the compound interest effect.  Tax on dividend income will be levied only when withdrawing funds from the equity savings account.

 Differences between the equity savings account and the book-entry account the tax treatment of dividends:
 
Tax rate for the equity savings account depending on capital income Tax rate for the book-entry account depending on capital income
30% or 34% 25.5% or 28.9%
 

Foreign stocks into the equity savings account or the book-entry account?

Investors with a long-term investment horizon may safely keep Finnish and foreign stocks in the book-entry account. For tax reasons, it pays to use the equity-savings account to buy only Finnish stocks, especially stocks with dividends. 

  • Double taxation is a risk in dividends of foreign stocks. Tax credit of 15% for tax at source does not apply to dividends paid from abroad into the equity savings account, unlike in the book-entry account.
  • According to calculations, the book-entry account is a more profitable choice for dividend investments of less than seven years, but after that, the equity savings account is more profitable thanks to the compound interest effect.
  • Please note that you cannot take advantage of the deemed acquisition cost of 40% in holdings when selling the stocks that have been held over 10 years. Only the book-entry account has this advantage.
  • In the book-entry account, tax at source in excess of the Finnish dividend tax rate is mainly taken into account and refunded in Finnish taxation. When it comes tax treatment of foreign stocks, the scales tip in favour of the book-entry account.