How Unwise Expats Could be Losing Money by Saving Offshore

The state of the world’s economies, the level of the pound’s exchange rate in comparison to the likes of the dollar and the euro as well as very poor interest rates and increasing inflation mean that some expatriates are getting less than a zero rate of return on badly invested offshore savings accounts at the moment.

Some banks which offered good introductory rates to attract new expat savers have now reverted to their usual levels of interest, and when you factor in exchange rate costs and inflation, you will soon realise that actually, some of the high street banks with offshore and international savings accounts are effectively offering their customers less than a zero rate of interest in real terms.

In this article we’ll look at how unwise expats could actually be losing money by saving offshore right now as a result – and how you can ensure that you’re actually getting the most for your money whether you squirrel away a lump sum or you save regularly.

Many banks offer attractive introductory savings rates on even their most basic offshore bank accounts and savings products for expatriates – as one company’s advertising campaign put it, some banks use these rates to ‘hoik you in!’  And once you’ve been ‘hoiked’ in and are hooked by that bank, your account quickly reverts to either the base rate of interest or the base rate plus a tiny ongoing incentive to keep you saving and banking with that institution.

As inflation increases, as expatriates face the negativities of exchange rate fluctuations between the currency they earn in, the currency they save in and their currency back home, and if you then have to factor in any taxation on savings, you soon realise that the real value of your savings could well be being eroded in real terms if you opt for a simple savings account and fail to keep abreast of that account’s changing interest rates.  This is especially damaging for those who earn an income from their savings such as retirees who are living abroad.

To avoid falling into the trap of earning a negative rate of return on your hard earned and stashed away cash, it’s time to take positive action.  Here’s what expatriates can do.  Firstly they can look at whether there are any attractive products that offer higher rates of return over a longer, guaranteed period.  In the UK there are some fixed rate bonds available that are proving popular with onshore savers, and elsewhere in the world, depending on where you’re tax resident, there are likely to be similar equivalents that you can look into utilising.

However, it is predicted that when the world’s economies begin to recover – as history tells us they will, even if our pessimistic natures and negative media hype suggest otherwise – interest rates may well shoot up, and having locked yourself into a fixed rate of return for a fixed period to see you through these current touch times, you could find that that is a decision that turns around and bites you on the backside!  So, if you consider opting in for a fixed period for a fixed rate of return, perhaps look no further than the short-term.

Other options are perhaps more suitable for those looking to save regularly.  Some institutions prefer to be drip fed money on a longer-term commitment basis from customers.  As a result, regular savings accounts sometimes attract higher rates of interest if a saver commits to placing a minimum given sum into the account each month for a fixed number of months or years.  If you can commit to such an arrangement, ask your financial adviser which options are currently available for you, and from which banks.

Finally, you need to stay 100% abreast of interest rate changes across all assets and accounts that you hold as well as keeping up to date with which institutions and offshore banks are offering attractive offers and account options.  To do so requires a certain amount of financial knowledge and a lot of dedication.  It’s a pastime most suited to retired maths teachers perhaps!  However, it is not something that the vast majority of us have time for, let alone the tenacity for, which is where offshore financial advisers come in. 

These guys not only make it their job to keep abreast of changes in the marketplace, the best ones have close relationships with the leading institutions and as a result, their clients benefit from preferential savings rates on certain products anyway, which enables them to get far better than zero rate returns.  What’s more, all good financial advisers will help you manage your entire portfolio for maximum returns, taking the hassle and the headaches away for you.  If you’d like to speak to an independent adviser who we can recommend in a location close to you, .(JavaScript must be enabled to view this email address) and we will do all we can to assist.