Author Topic: Hard currency deposits abroad at high interest rates  (Read 7850 times)

alwaysonit

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Hard currency deposits abroad at high interest rates
« on: July 06, 2014, 10:21:07 PM »
Surprisingly couldn't find anything on this as I thought it would be a popular move in the current climate.
Has anyone deposited abroad or have any deposit advice on it?

I've been looking into it over the past couple of months and the following options look solid:

Mongolia: Erelbank. There is deposit insurance up to the first 8k EUR or thereabouts. 7.2% on 1 year USD term deposit and is easy enough to open an account without having to visit there. I have opened an account with these already.

Georgia: Bank of Georgia. No deposit insurance, 4.5% for a 1 year EUR term deposit. Possible to open account online, but minimum initial deposit is $100k. I have opened an account with these also, but have yet to transfer the funds.

Azerbaijan: International bank of Azerbaijan, just over 28k EUR deposit insurance per person per institution. 9.8% on 1 year USD term deposit, 5.8% if it is held in EUR. So far have not found a bank that does not require me to visit the country to open an account.

Be interesting to see what peoples views are on this as, currency risks aside, all products seem to outperform anything in North America or the Eurozone.

sol

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Re: Hard currency deposits abroad at high interest rates
« Reply #1 on: July 06, 2014, 11:10:42 PM »
all products seem to outperform anything in North America or the Eurozone.

Hmmm, I wonder why that might be?

RyanHesson

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Re: Hard currency deposits abroad at high interest rates
« Reply #2 on: July 07, 2014, 12:08:06 AM »
I read the topic title and thought it was something else, so I'll comment on what I thought it was, despite the fact that it's not quite.

I thought about doing this for USD/TRY pairs or USD/ZAR pairs on spot trading Forex with low marign. Like 2:1, but these pairs are, for 1, incredibly volatile and 2, trend very strongly. Since that's all I've looked at it's all I'll speak about right now.

http://finance.yahoo.com/q/bc?s=USDTRY=X&t=5y&l=on&z=l&q=l&c=
Imagine if you shorted USDTRY 5 years ago. Sure, you would have made a ton of interest, but you would have lost all that and then some on the chance in value of USDTRY.

http://finance.yahoo.com/q/bc?s=USDZAR=X&t=5y&l=on&z=l&q=l&c=
The situation is even worse with USDZAR.

These are TERRIBLE long term investments. The ONLY thing you could do is make short term trades when you think in the immediate term when you're bearish on the pair. Because the swap rate for these pairs is so high it can reduce any losses you take and improve any gains you take, but for a short and hold these are disastrous and will lose money.

I don't know anything about Azerbaijan, but I'm curious as to why the rate is so high? Is that "insurance" worth anything? As in, if the bank failed, would the government actually be able to pay that money?



Stachesquatch

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Re: Hard currency deposits abroad at high interest rates
« Reply #3 on: July 07, 2014, 12:20:14 AM »
When I was living in South Africa I put money in a Capitec savings account- 10% interest! Maxed out at equivalent of $7,000 US per the bank policy but that amount really appreciated nicely.  With the residency rules I had to cash out before returning to the US. 

One thing to keep in mind is that currency swings can have a positive or negative affect on your yield.

Strawberrykiwi75

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Re: Hard currency deposits abroad at high interest rates
« Reply #4 on: July 07, 2014, 02:03:48 AM »
You have to go to the country to open accounts because of international laws.

Americans, beware of FATCA laws which mean you will still pay tax on these investments in the US.

Check how well these banks are rated internationally by someone like Standard & Poor. I fear they may be likely to go under if they have to offer deposit insurance. And is the insurance worth the paper it's written on?

Interest rates are rising in some areas such as NZ and maybe Australia (in future). These countries also have very large and stable banks. Both are commonly traded currencies.
A years term deposit in NZ will earn you about 4.30% p.a but this is projected to reach approx 6% in late 2016 if rates continue to rise at current rates.

alwaysonit

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Re: Hard currency deposits abroad at high interest rates
« Reply #5 on: July 09, 2014, 06:14:40 PM »
You don't have to go to the country for all banks, I opened by Erelbank and Bank Of Georgia accounts through online correspondence and post.

chasesfish

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Hard currency deposits abroad at high interest rates
« Reply #6 on: July 09, 2014, 06:41:42 PM »
I'd probably by dividend paying equities, REITs, or do lending club before a foreign deposit.  All sound safer to me.  I think Cyprus deposits were in Euros, then they took a big loss.  The paperwork is also not fun.

But I'm a banker by trade and might not know what I'm talking about, so have at it.

arebelspy

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Re: Hard currency deposits abroad at high interest rates
« Reply #7 on: July 10, 2014, 08:43:56 AM »
all products seem to outperform anything in North America or the Eurozone.

Hmmm, I wonder why that might be?

If sol was too subtle for some of you, let me be a little less subtle:
There is a reason why they have to pay more, and there is a reason that more yield comes with more risk.  Are you being properly compensated for those risks?


...Hopefully if that's too subtle someone else will come along and make it clearer, and so on and so forth until the last person in the thread shows up at your house, hits you over the head and shouts "don't do it!"
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MgoSam

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Re: Hard currency deposits abroad at high interest rates
« Reply #8 on: July 10, 2014, 08:55:37 AM »
I remember reading about Indian banks offering really high rates and realized that while they offer a better return than Ally Bank, it isn't a completely safe investment. For the 7% return they offered, I would also have to contend with changing currency values, learning any tax issues, international risk, and felt that the return did not compensate for that level of risk.

Thedudeabides

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Re: Hard currency deposits abroad at high interest rates
« Reply #9 on: July 10, 2014, 09:11:18 AM »

all products seem to outperform anything in North America or the Eurozone.

Hmmm, I wonder why that might be?

If sol was too subtle for some of you, let me be a little less subtle:
There is a reason why they have to pay more, and there is a reason that more yield comes with more risk.  Are you being properly compensated for those risks?


...Hopefully if that's too subtle someone else will come along and make it clearer, and so on and so forth until the last person in the thread shows up at your house, hits you over the head and shouts "don't do it!"

+1

I remember some of my friends chasing yield in foreign currencies circa 2007 and marveling at the yield of the Icelandic Krona.

If you want to experiment, there are probably safer/easier ways than opening an account. Check out Everbank.

alwaysonit

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Re: Hard currency deposits abroad at high interest rates
« Reply #10 on: July 10, 2014, 12:45:22 PM »
I had a look at Everbank, being FDIC insured is a big plus but the interest rates are less than half what they would be if I opened an account in the country itself.
I don't have to pay tax on interest earned in my home country (Ireland) as I'm a non-resident and I think if I can hold my deposit in EUR or USD with a large bank, get rates of circa 7% and have deposit insurance then the worst case scenario is I will be repaid in the devalued local currency.
As my interest increases by 6%, I have to decide if there's a larger than 6% chance that the bank will fail. If so, it's not worth the risk.
Of course I could alternatively invest in an index fund or REIT's as chasefish mentioned, but I am of the (possibly naive) view that a bank deposit is of less risk than these?
I appreciate all of the advice, please keep trying to talk me out of it!

arebelspy

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Re: Hard currency deposits abroad at high interest rates
« Reply #11 on: July 10, 2014, 01:24:01 PM »
Of course I could alternatively invest in an index fund or REIT's as chasefish mentioned, but I am of the (possibly naive) view that a bank deposit is of less risk than these?

A bank deposit in Mongolia, Georgia (the country, not state), or Azerbaijan less risky than being the partial owner of a company like Coca-Cola, GE, McDonald's, P&G, etc.?

It very much depends on how you define risk (you are perhaps referring to beta?).  It may be less volatile (and possibly less risky in terms of losing capital if you need it right away), but I think over the next 30 years it's certainly much more risky.
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farmstache

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Re: Hard currency deposits abroad at high interest rates
« Reply #12 on: July 10, 2014, 01:42:49 PM »
You know I had to struggle with this question when deciding last year where I wanted to put my investments. We have amazing rates for govt bonds here, and the risk is low (not likely the brazilian govt should break anytime soon), but inflation is high. Our local stock market is also tiny: we don't have 1000 companies on it I think, so if a medium company goes downhill it hurts the overall index. So basically you marry a company and go long-term, trying not to think of the medium stock index. We also have a lot of variation in investments whenever the dollar goes up or down, fluctuating the stocks here much more than what I assume happens over there.

I seriously considered finding a way to invest in the american market due to the lower variability and greater stability over time, but the taxes and really dense bureaucracy turned me down.

I'm not complaining of my govt bonds at 6.3% above inflation, but the actual stocks are really harder to work with when you only have a few to choose from and has to run away from the averaged index.

I guess what I'm saying is: some of us are investing in those markets. You might have a higher risk in some cases, but if you choose well, you can find good stuff. Yet sometimes I wish I was in the US.

EscapeVelocity2020

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Re: Hard currency deposits abroad at high interest rates
« Reply #13 on: July 10, 2014, 01:52:51 PM »
I am an American with a bank account in Norway, having had an international assignment there and leaving the account open.  Every year, I have to fill out a FBAR for the IRS and pay taxes on interest, but other than that it is nicely 'hands off'.  Not sure what the rules are in Ireland. 

Currency exchange is also a nice hedge from domestic asset allocation, so I like the idea that, especially if interest rates rise in the US and stay the same in Norway, the currency exchange should grow more favorable.  Norway is a very stable country, but they currently have pretty high inflation.  I also like the fact that their banks charge very reasonable fees (good exchange rates and low transaction cost, this is important to be aware of). 

My basic strategy is, when nok/USD is above 6, I spend cash using my US ATM card, and when nok drops below 6 I consider taking money out of my Norwegian bank using the ATM, it's as simple as that.  It's a very slow spend, somewhat in line with the decline in my outstanding mortgage balance for the most part, but I like that it offsets my exposure to the USD, since I plan to travel extensively in retirement.  Any time I want, I could do a wire transfer for larger sums, but I get a call from my bank for amounts over 10k. 

Even with this mostly pleasant experience (my ATM card got shut down once, but I have regular business travel to Norway, so it wasn't a big deal), I'd be uncomfortable chasing high yield in any of the countries you mentioned.  Would you really want to have to fly to these countries when there are problems?

frugaliknowit

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Re: Hard currency deposits abroad at high interest rates
« Reply #14 on: July 10, 2014, 02:58:57 PM »
You are not comparing apples to apples.  Euros are not USD.  Unless you plan on living in the eurozone, the interest rates on the Euro is irrelevant.  All that has to happen is for the Euro to go from 1.3800 to 1.3100 and guess what (-5%)?  There are people who work in banks who try to arbitrage this for a living with billions of dollars/euros at a time.  BTW, Portugal in the news...

farmstache

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Re: Hard currency deposits abroad at high interest rates
« Reply #15 on: July 10, 2014, 05:17:14 PM »
I think if you plan on investing in foreign markets, you should let go of exchange rates for a while. You have to think in terms of "I have 300k USD, plus 20k BRL, plus 15k YEN", and work with your investments taking the local market into consideration.

Of course it's easier if you don't have to gamble with exchange rates. The USD to BRL rate went up from 1:1 in the nineties to 1:2.50 in 2012, then went back to 1:1.7 in 2013 and is now kind of settled near 1:2.2. Every year it varies a lot. My salary was in USD and each month I got variations as large as 5%.

So, I don't know. I think I'd like to invest in the USA for diversification, as much as I trust our economic trends (especially in real estate). Yet, we really do need to know a lot about the other country.

Melody

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Re: Hard currency deposits abroad at high interest rates
« Reply #16 on: July 13, 2014, 12:22:40 AM »
I know here in Australia I can go to my local HSBC and open a USD account. I think some other currencies are available as well. I started looking into it, but never saw it through. (At the time I was traveling a lot, mostly to countries where the exchange rates moved somewhat in tandem with USD so I thought it make make sense to have it as a holiday savings account, putting more in when the rates were good and also allowing easier access to these funds abroad.) So maybe try a local branch of a large international bank to get a non USD account where you don't need to actually get on a plane. I am assuming this would also simplify things from a tax point of view as your "source" is still local.

enm060

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Re: Hard currency deposits abroad at high interest rates
« Reply #17 on: November 25, 2015, 11:41:10 AM »
Exchange risk is a concern only for local currency bank accounts abroad, I believe such shouldn't be part of anyone's fixed income portfolio in the first place. That said, many countries offer savings accounts in major currencies such as USD, EUR, GBP etc. Most banks do not require local residence to open an account, yet require a personal visit to the bank except when they have a branch abroad (such as Bank of Georgia London Branch), or permit online account opening (the case for Mongolia). Lack of FDIC for some countries raises the credit risk, although there are countries, which do offer depository insurance. A good example is several years ago one could earn >5% yield in EUR deposits in Bulgaria at a EUR 100,000 depository insurance (leading banks in Bulgaria boast investment grade credit rating).

The following resource summarizes some of the best major currency bank accounts globally: http://www.globalbankpilot.com .
It also includes depository insurance information by country.