−€28

difference after five years

+€530

difference after fifteen years

+€5,266

difference after thirty years

€100,000

deposit limit on the account

Two ways of taxing the same return

On a regular securities account, dividends are taxed in the year they are paid. Of a listed company’s dividend 85 per cent is taxable capital income, so the effective rate is 25.5 per cent up to €30,000 of capital income. Capital gains are taxed only on sale, at 30 or 34 per cent.

Inside an equity savings account nothing is taxed at all. Dividends and sale proceeds stay in the account in full and are reinvested. Tax is paid only on withdrawal, at 30 per cent of the profit up to €30,000 and 34 per cent above. In exchange the account gives up the 85 per cent dividend relief, the deemed acquisition cost and the small-sale exemption.

When the difference flips

In the early years the equity savings account loses, because the forfeited dividend relief bites immediately while the compounding advantage is still small. The turning point falls in year eight. After that the advantage grows faster and faster, because an untaxed dividend stays invested and earns further untaxed dividends.

The dividend yield decides everything

The entire advantage of the equity savings account rests on reinvesting dividends untaxed. With no dividends in the portfolio there is no advantage. The same fifteen-year example at different dividend yields shows it directly.

On the zero per cent row the difference is exactly zero euros, not nearly zero. That follows logically: if the whole return comes from price growth, both accounts pay tax only on sale, at the same rate. For an investor focused on growth stocks the equity savings account offers nothing.

What else is worth knowing

• ·The deposit limit is €100,000, but it applies only to deposits — the account’s value may grow beyond it.
• ·One person may hold only one equity savings account at a time. Holding more triggers a penalty charge.
• ·Losses cannot be deducted from other capital income while the account is open. If the account is closed at a loss, that loss becomes deductible.
• ·A withdrawal always taxes a proportional share of the profit, not just the gain — you cannot withdraw capital first and leave the profit behind.
• ·Foreign withholding tax on overseas shares is deducted as normal, and reclaiming it can be more awkward than on a regular account.

Fees can swallow the whole tax advantage

An equity savings account is a service, and services carry charges. Some banks offer the account with no maintenance fee; others charge an annual fee or a percentage-based custody fee. This figure matters more than the tax treatment, and it is easily missed because it is expressed as a small percentage.

In the example the account’s advantage over fifteen years was €530. Charge a 0.2 per cent annual fee on it and the advantage turns into a €127 deficit. The break-even point is 0.16 per cent a year: any custody fee above that consumes the entire tax benefit. So compare the fee schedules first and the tax treatment second — and remember that trading commissions come on top of this on both accounts. With active trading the commissions easily exceed the custody fee, and they hurt an equity savings account particularly badly, because the whole point of the account is to let the return compound untouched.

Who each account suits

The equity savings account suits a long-term dividend investor who buys Finnish and other listed shares, intends to hold them for more than ten years and reinvests the dividends. The longer the horizon and the higher the dividend yield, the clearer the advantage.

A regular securities account suits you if you invest in funds or ETFs, if the horizon is under ten years, if the return comes mainly from price growth, or if you want the ability to deduct losses from capital income along the way. For many people the sensible answer is both: dividend shares in the equity savings account and funds in the regular one.