Inflation has been far outpacing interest rates in the UK and eroding the real value of a saver’s wealth for far too long, but are expatriates savers and investors any better off when they place their money offshore?
Depending on where in the world you live, and depending on your cost of living, are you managing to beat inflation and outsmart historically low interest rates? Can expats actually beat inflation with their offshore savings?
In the UK, if you want to at least keep pace with inflation and ensure the real buying power of your money is not worn away completely, you finally can with the likes of some cash ISAs and long-term bond and savings account offerings from some of the more ‘adventurous’ banks. But what’s the situation like offshore for expats?
Theoretically, expatriates should be in a better position than their onshore peers when it comes to beating inflation with their simple savings accounts, this is because they have more choice in terms of where they put their money and how they save or invest it.
However, expats are not immune to many of the same financial concerns as their onshore peers, and in some areas, they are exposed to even greater risks.
For a start, savers in the UK have received something of a boost in terms of the security of their money thanks to the increase in the amount the Financial Services Compensation Scheme will guarantee. From the 1st of January this year £85,000 of a saver’s wealth in a given institution is guaranteed.
Expatriates do not benefit from such guarantees, because even in jurisdictions where their money should be ‘safe’ to the tune of say, £50,000, compensation schemes have been seen to fail to protect (reference Guernsey : Landsbanki for example).
Elsewhere there are no investor compensation schemes, so expatriate savers have to be very careful about where they put their money if they want to be sure they will ever see it again.
This means than an expat is much more likely to trust a ‘big’ name if they want to have some sort of peace of mind. So, what are the ‘big’ banks and financial services companies offering savers in terms of interest rates at the moment?
A quick look at HSBC’s offshore savings accounts reveals: –
Online Bonus Saver Account – (an instant access savings account) – Rates (including bonus) up to GBP 1.00 % AER (1.00 % Gross), USD 0.45 % AER (0.45 % Gross), EUR 1.00 % AER (1.00 % Gross), (when you make no withdrawals)
Rates (standard) up to GBP 0.10 % AER (0.10 % Gross), USD 0.05 % AER (0.05% Gross), EUR 0.10 % AER (0.10 % Gross) (in any month that you make a withdrawal)
Currencies: sterling, US dollars, euro
Access: Internet only, instant access
Minimum balance £5,000, US$5,000, or €5,000
Now that’s not going to help offshore savers beat inflation is it?
What about if you tie your money up for longer then?
How about HSBC’s Fixed Term Deposit Account?
Available in 14 major currencies, including sterling, US dollars and euro, the best rates are available to HSBC Premier customers and stand at 2.36% AER on balances over £5,000 committed for 5 years.
Note: rates and details taken from HSBC’s website 18th January 2010: Expatra is not responsible for the accuracy or otherwise of data on any external company’s website.
It is possible that this rate will help a saver beat inflation – but only if they’re living in a country that’s got inflation running at about half our own in the UK! However, even if you think that 2.36% AER is a good rate today, it’s unlikely you’ll be thinking that in 1, 2 or more especially, 5 years time!
According to a survey of economists conducted by Reuters and according to expert opinion expressed in the Telegraph, interest rates in the UK are going to rise sooner rather than very much later – and we believe this will have a positive knock on effect across interest rates offered onshore and offshore to savers.
In the meantime, anyone who wants to get more for their wealth can only do so if they’re willing to commit for the long-term. But does it make sense to do so when interest rates are expected to rise?
If you tie in for the long-term now at a rate that doesn’t even beat inflation, imagine how unhappy you will be if interest rates rise and leave you and your wealth behind before your fixed term is up.
Expatriate savers can of course look beyond the big names such as HSBC, Barclays and Lloyds – they can look to lesser known or less well marketed banks and see if they can offer them a way to beat inflation with their offshore savings.
However, finding the right way forward so that you get the very most for your money with risk exposure that’s tolerable for you is 100% a personal choice. The path you choose will not only be dictated by your own personal circumstances and the accounts or solutions available that may suit you, but by your attitude towards risk and your intentions for the short, medium and long-term utilisation of your wealth.
We always suggest that expatriates seek qualified, independent advice from regulated and approved offshore financial advisers who are expert and experienced in assisting expatriates with their wealth management.