Fixed term deposits with banks abroad?

marathon_man_3

When my wife and I were on holiday in New Zealand, early last year, we were so envious when we saw the fixed term deposit rates that we went into a branch of ANZ bank and opened a deposit account there and then although we have never placed any funds in it. We still receive occasional "nil balance" bank statements here in the UK.
The rates available now are lower than then but still vastly superior to what we can earn in the UK as can be seen below.
There is at least one ANZ branch in London. I am wondering what the pitfalls would be if I was to place some money, for say a year at 4.3%, with the bank. What might the charges be? I guess that the deposit would be subject to exchange fluctuations when matured. Also, what would the tax position be on interest earned? My wife and I are both retired and paying basic rate tax.
Thanks.
30 days3.00% p.a.60 days3.00% p.a.90 days3.25% p.a.120 days3.25% p.a.150 days3.25% p.a.180 days4.00% p.a.270 days4.25% p.a.1 year4.30% p.a.

iilg

marathon_man wrote: »

When my wife and I were on holiday in New Zealand, early last year, we were so envious when we saw the fixed term deposit rates we went into a branch of ANZ bank and opened a deposit account there and then although we have never placed any funds in it. We still receive occasional "nil balance" bank statements here in the UK.

Did you tell them you lived in NZ? How come they allowed you to open an account there when you reside permanently in Britain? The account is in what currency?

newfoundglory

Sounds very risky

Currency would probably be either NZ or AUS $$

Differing rates of inflation and essentially you are playing with currency markets as well.

missile

You are required to declare interest to HMRC and would be liable for tax on the interest at basic rate.

You would have a better net return than a similar fixed rate deposit in the UK. You would not have the protection of UK compensation scheme and will be exposed to currency exchange rate charges and fluctuation risk.

marathon_man_3

We had our passports and proof of address with us so the bank manager was aware that we lived in the Uk.
The account, which as I said has not had any deposits to it so far, is a NZ dollar account. Thus any sterling deposits would need to be converted at the outset and then converted back again upon maturity. There would be only two such conversions as we would leave the interest to be paid on maturity.
This is all borne out of frustration at the crappy interest rates here but I am uncertain, with the potential pitfalls and charges, if it is worth doing hence my query.

Linton

marathon_man wrote: »

We had our passports and proof of address with us so the bank manager was aware that we lived in the Uk.
The account, which as I said has not had any deposits to it so far, is a NZ dollar account. Thus any sterling deposits would need to be converted at the outset and then converted back again upon maturity. There would be only two such conversions as we would leave the interest to be paid on maturity.
This is all borne out of frustration at the crappy interest rates here but I am uncertain, with the potential pitfalls and charges, if it is worth doing hence my query.

Two problems:
1) You will have two currency transfers which will cost some % of your lump sum.

2) The exchange rate could change by more than the interest gained during the term of the deposit.

The net effect would be a pure gamble whether you actually gained anything compared with keeping your savings in the UK.


If you are prepared to take these sorts of risk perhaps you would be better investing in shares/funds.

iilg

Linton wrote: »

Two problems:
1) You will have two currency transfers which will cost some % of your lump sum.

2) The exchange rate could change by more than the interest gained during the term of the deposit.

The net effect would be a pure gamble whether you actually gained anything compared with keeping your savings in the UK.


If you are prepared to take these sorts of risk perhaps you would be better investing in shares/funds.

Or currency spread betting, no tax deduction necessary either.

missile

Being optimistic, currency could change in your favour during the period which would increase the value of your saving.

VT82

missile wrote: »

Being optimistic, currency could change in your favour during the period which would increase the value of your saving.

The theory of 'interest rate parity' suggests it will go the other way. Plus the barriers to entry of there being costs at both ends to exchange currencies makes it an even riskier proposition.

Far from guaranteed that it'll go against you; it could be there is more credit risk in the NZ banks pushing up the returns they offer for example, but worth a Google of 'interst rate parity' to explain the theory anyway.