Euro savings

dag_2

I've just noticed ....

According to Customs & Excise figures, the Euro has gained over sterling at a rate of roughly 6.8% per annum since its launch in 1999.

This means that converting your sterling into euros and stuffing it under your mattress will easily outperform many of the best savings accounts Martin Lewis has listed, provided (a) the rate gain continues, and (b) you can get reasonably good exchange rates.

As for (a) - the rate gain might not continue. But here's another way of looking at it. People who have only learned to measure monetary value in one currency tend to think of that currency as being "safe", and all other currencies as "risky". Therefore, any holdings of their own currency get called "savings" and all other currencies get called "investments".

But this is a fallacy. It's very unlikely that either Euro or Sterling will crash any time soon - but I think that sterling is more likely to crash than the Euro. Why? Just a hunch. Trading in euros covers a much bigger area and many more people than sterling - it is therefore a much more powerful currency. Sterling savings aren't inherently safer than Euro savings - but I suspect Euro savings are somewhat safer than Sterling.

An interest bearing savings account would be even better than stuffing money under your mattress. But this is all new to me, and I'm not sure where to begin looking.

Are there any best buy guides that compare savings accounts all across Europe? And is there anything stopping me wandering into a bank in Paris or Dublin with a cash deposit, and opening a savings account on the spot?

Thanks.

dag_2

I've started finding savings accounts in Ireland.

If you opened an account in Dublin, but don't register for exemption from Deposit Interest Retention Tax, does that mean you wouldn't have to pay UK income tax on the interest?

Walletwatch

I've just noticed ....

According to Customs & Excise figures, the Euro has gained over sterling at a rate of roughly 6.8% per annum since its launch in 1999.

This means that converting your sterling into euros and stuffing it under your mattress will easily outperform many of the best savings accounts Martin Lewis has listed, provided (a) the rate gain continues, and (b) you can get reasonably good exchange rates.

As for (a) - the rate gain might not continue. But here's another way of looking at it. People who have only learned to measure monetary value in one currency tend to think of that currency as being "safe", and all other currencies as "risky". Therefore, any holdings of their own currency get called "savings" and all other currencies get called "investments".

But this is a fallacy. It's very unlikely that either Euro or Sterling will crash any time soon - but I think that sterling is more likely to crash than the Euro. Why? Just a hunch. Trading in euros covers a much bigger area and many more people than sterling - it is therefore a much more powerful currency. Sterling savings aren't inherently safer than Euro savings - but I suspect Euro savings are somewhat safer than Sterling.

An interest bearing savings account would be even better than stuffing money under your mattress. But this is all new to me, and I'm not sure where to begin looking.

Are there any best buy guides that compare savings accounts all across Europe? And is there anything stopping me wandering into a bank in Paris or Dublin with a cash deposit, and opening a savings account on the spot?

Thanks.

1. The problem with acting on one's hunches is the downside risk, as you yourself have pointed out. The ccy market is the same as any other market - past results are no indicator of future trends, unless of course, you are from the Technical analysis school of thought, or an Elliotist or something.

2. A GBP savings account on the other hand is much safer, and one is right to measure monetary value in sterling at least for the next couple of years, after which they might review GB joining the common currency. Even in such a case, there will be a transition period, when the GBP will very much be legal tender.

3. The BoE rate is 4.75 while the Euro Central bank rate is 2.75%, so you will have to suffer a rate differential on your savings account even if you were to open one.

4. The only option in my opinion, is an onshore EUR savings account, of course I may be wrong.

5. Finally, if 4 above is correct, further bad news is that the max rate you get on Eur accounts offered onshore is to the tune of 1.5%. Refer the FT Weekend (18/19 Dec) Money and Business Page M24 for an article.

dag_2

Thanks for the reply.

past results are no indicator of future trends

Agreed. But the same argument can be applied to variable rate savings accounts. Just because the interest rate on one savings account is higher than another today is no guarantee that it will still be higher tomorrow.

You can also apply it to fixed rate savings accounts - because you're relying on low inflation. In short, there's absolutely no guarantee that any one method of saving or investing is better than any other.

A GBP savings account on the other hand is much safer, and one is right to measure monetary value in sterling at least for the next couple of years, after which they might review GB joining the common currency.

What I can't help wondering is - does that also apply to residents of Ireland, France, Spain and Germany? Should they be measuring monetary value in sterling too? And if not, why not?

The BoE rate is 4.75 while the Euro Central bank rate is 2.75%, so you will have to suffer a rate differential on your savings account even if you were to open one.

True - unless you think the growth of the euro will compensate for this.

Thanks for the article reference - I'll follow that one up.

Walletwatch

Thanks for the reply.

Agreed. But the same argument can be applied to variable rate savings accounts. Just because the interest rate on one savings account is higher than another today is no guarantee that it will still be higher tomorrow.

You can also apply it to fixed rate savings accounts - because you're relying on low inflation. In short, there's absolutely no guarantee that any one method of saving or investing is better than any other.

What I can't help wondering is - does that also apply to residents of Ireland, France, Spain and Germany? Should they be measuring monetary value in sterling too? And if not, why not?

True - unless you think the growth of the euro will compensate for this.

Thanks for the article reference - I'll follow that one up.

On your first comment, agreed, there is subjectivity on everything and here's where one's view of the market or a hunch, as you call it comes into play. Personally, I am hoping that early Jan there will be some good fixed rate deals in the market, as my view of the market (again I may be wrong) is that this is the right time to fix my deposit rate at the best rate that I get.

On your next query, I think to some extent it becomes a matter of relevance. I would start considering this aspect very seriously if I expect an imminent move to one of the Euro-countries, in which case, I would probably start the groundwork and give this more thought than I am doing right now. Given the fact that most of the info that is fed to me is on GBP, and the fact that there are no good EUR savings account deals out there in the market, I am happy to stick with my savings in GBP.

To add to the above however, if I were a resident of a euro country like France, and I had access to a Bank offering me savings accounts in GBP as well as EUR at rates of say, 5% and 3% respectively, I would still be happy to keep my exposure in GBP provided:

1. I do not get fleeced too much on the exch rate if I do have to withdraw at any point in time
2. I would of course, only put so much in a GBP account that I would not need to touch anyway.

But then that again is due to a difference of opinion, as I don't see the GBP weakening drastically in the near future.

Walletwatch

A link to the article for you...

http://news.ft.com/cms/s/96f4bc4c-503b-11d9-b551-00000e2511c8.html

Fatboy_NSS

No, residents of the Eurozone should be measuring monetary value in Euro. This is because it's the currency they will be spending their savings in when the time comes.

As an example, if I put my money on deposit today fixed term for a year I know exactly how much I will have in 1 year time. If I convert my money to Euro and put it on 1 year fixed deposit then I know exactly how many Euro I will have in 1 year time. However the amount I have in sterling is as yet unknown, as that would depend on what happens to the exchange rate over the year.

Given that your argument is based on past performance then I would seriously advise against putting your money on deposit in Euro. You are taking a massive risk which could lead to fantastic returns but could also lead to losses. I'd only suggest investing in currency as a small part of a large portfolio, and even then you should go for stocks rather than holding cash.

cgnao

It might be useful for you to know that foreign currency deposits are liable to both income tax and capital gain tax (the latter apply upon withdrawal)

from the Inland Revenue's website (http://www.inlandrevenue.gov.uk/euro/faqs_tech.htm)

Q. Do currency fluctuations on a euro bank account held by a UK resident individual have to be returned?

A. No. The movements in value of balances in a euro account arising from currency fluctuations do NOT have to be reported for tax purposes.

Withdrawals from the account may give rise to gains chargeable to Capital Gains Tax, or to allowable capital losses. However, if the balance in the euro bank account represents currency that has been acquired for personal expenditure outside the United Kingdom for the individual or their family or dependants, there will be no Capital Gains Tax liability on any withdrawals. This includes currency acquired for expenditure on the provision or maintenance of any residence outside the United Kingdom.

The same rules would apply for any foreign currency bank accounts that are held in the UK.

cheerfulcat

Hi, dag,

Are you sure about this?

According to Customs & Excise figures, the Euro has gained over sterling at a rate of roughly 6.8% per annum since its launch in 1999.

This means that converting your sterling into euros and stuffing it under your mattress will easily outperform many of the best savings accounts Martin Lewis has listed, provided (a) the rate gain continues, and (b) you can get reasonably good exchange rates.

Because from what I can see, the Euro started off at roughly the same level it is now, dipping down to 60 p in between times. Doing what you suggest would have cost you a fair bit of money , especially if you factor in spreads in exchange rates, commission, lost interest and inflation.

But here's another way of looking at it. People who have only learned to measure monetary value in one currency tend to think of that currency as being "safe", and all other currencies as "risky". Therefore, any holdings of their own currency get called "savings" and all other currencies get called "investments".

But this is a fallacy. It's very unlikely that either Euro or Sterling will crash any time soon - but I think that sterling is more likely to crash than the Euro. Why? Just a hunch. Trading in euros covers a much bigger area and many more people than sterling - it is therefore a much more powerful currency. Sterling savings aren't inherently safer than Euro savings - but I suspect Euro savings are somewhat safer than Sterling.

But if your income and expenditure are in pounds sterling it would be madness to keep your savings in a different currency! It's safe because you are not taking a currency risk. As to a currency " crashing"; it can only do that against other currencies. If the pound lost value against the Euro it wouldn't matter to anyone who didn't need to trade pounds for Euros. ( Obviously disregarding possible effects on the economy ).

Cheerfulcat

Walletwatch

But if your income and expenditure are in pounds sterling it would be madness to keep your savings in a different currency! It's safe because you are not taking a currency risk. As to a currency " crashing"; it can only do that against other currencies. If the pound lost value against the Euro it wouldn't matter to anyone who didn't need to trade pounds for Euros. ( Obviously disregarding possible effects on the economy ).

Cheerfulcat

Exactly my sentiments. As I said, unless you travel to the Euro countries a lot, have frequent cash inflows / outflows in Euros or are contemplating an imminent move to one of the Euro currency countries, you would always retain cash in pounds.

Unless, of course, you have a fairly big portfolio, and having diversified on all other fronts, would like to undertake currency / geographical diversification as well !!!