Beating inflation by saving overseas

five_o

I was just thinking about how low interest rates are at the moment here in the UK and it got me thinking. My other half is from South America and I noticed that the interest rates on savings over there are quite high (circa 9-10 percent). The rate of Inflation over there would eat considerably into the real value of savings. In addition, I have noticed over the past 5-7 years that the exchange rate between Sterling and the local currency has not fluctuated a great deal.

This might sound like a silly question but if one was to save an amount of money over there at let's say 10%, would I be right in saying that as long as the exchange rate does not fluctuate too much, we would actually be beating inflation by transferring the interest to the UK on an annual basis??

10% interest - 2.8% UK inflation = 7.2% real return (less income tax)

JoeCrystal

1. Exchange rate fees
2. What is the guarantee if the banks collapsed?
3. Depending on the countries, some currencies are pegged to $US dollars and changeable
4. Very risky.
5. The governments seem to be quite happy to meddle in the currencies.
6. Very risky.

Cheers,
Joe

grizzly1911

Political instability.

Revolution.

Who knows when the exchange risk might take off.

Corruption.

Cyprus.

BeachNut

Might make sense if you plan to have financial commitments over there in the future (eg. buy a property) and you just deposit locally earned income over there (ie. in local currency). Also if other half is non-UK tax resident interest will not be subject to UK income tax (but perhaps local tax).

Glen_Clark

five_o wrote: »

10% interest - 2.8% UK inflation = 7.2% real return (less income tax)

Maybe I am reading this wrong, but you don't appear to realise your capital will be in their currency, so its the rate of inflation in their currency that matters. And you don't say what it is.

bigadaj

South America isn't a country, which one are you looking at?

Biggles

Glen_Clark wrote: »

Maybe I am reading this wrong, but you don't appear to realise your capital will be in their currency, so its the rate of inflation in their currency that matters.

Not if they are spending the money here - and, of course, as long as the exchange rate doesn't fluctuate.

But the other unknown figure to take into account is the cost of transferring it here and converting from pesos (or whatever) to pounds.

It's unlikely to be worth it for the small gain and the large risk(s).

gkerr4

interesting point - it might be worth a go with a few grand - similar to the risks of buying a share or any equity - you take a level of risk for a higher return.

I don't think i could sleep at night with more than a few grand in it though so on that basis, the risk/reward calculation doesn't work for me.

redbuzzard

If their inflation is higher than ours, the exchange rate will move against you as night follows day.

sabretoothtigger

grizzly1911 wrote: »

Political instability.

Revolution.

Who knows when the exchange risk might take off.

Corruption.

Cyprus.

Yes very good reasons to avoid Sterling. Just keep it in Brazil and you are likely better off :laugh:

redbuzzard wrote: »

If their inflation is higher than ours, the exchange rate will move against you as night follows day.

Barring the possibility of an eclipse or heavy cloud coverl I see the forecast as unreliable personally

If the rate stays level its telling you at least in that time period their currency was as good as ours. Sterling is a reserve currency and so the idea is risk lies greater elsewhere but perceptions can be wrong.

I dont see it has to be just 1 or the other, Australian dollars or a few others places might work. Right now I believe AUD is not popular at all, USA is perceived to have elected the correct fiscal path

bigadaj

Sabre, can't see any point in moving into Aussie do.lar currently as that looks overvalued, first time in history it's stronger than the green back, or do you mean the opposite? Also the whole country s reliant in mining and to a lesser extent oil and has, so very sensitive to commodities.

Intersttingly brazil would have been a fantastic deal a decade or so ago, and after all were looking more at currency speculation than interest rates to go back to te OP s original point.

Think I'd prefer Canada to oz currently for this purpose, but brazil still has great potential. Who knows, the scottish claymore or equivalent could be available ina few years for a very local punt? Don't fancy argentine pesos though given their record.

If you want a reserve currency it should surely all go into gold shouldn't it?