How to hedge against devaluing pound with savings?

anonymon

My current plan is quite short term, 1-2 years and therefore my money is in savings not investments. Inflation is a problem of course but my other worry is the currency itself. So far my savings are all in GBP, if the pound was to devalue substantially my savings would be reduced substantially as well.

If I was to invest my money longer term in a global index tracker I would reduce the risk (I think?) of one currency being devalued, but as I say I'm looking to save my money instead of invest it.

So my question is, is it possible to reduce the risk of any one currency from reducing in value whilst saving money? I thought of opening a savings account in Germany as well and then manually putting some of my savings over but I'm not sure how good an idea that is. Also I would rather somehow have a split between USD, GBP and Euros for example, but realistically I'm not sure if I can open an American bank account without flying over there!

masonic

Why are you worried about what your money would be worth in Germany or the USA? It seems like all the major players are in a race to devalue their currencies anyway. I wouldn't advise becoming a currency speculator.

Short term savings can be placed in high interest current accounts to obtain 3-5%, which is more than inflation.

mgdavid

where do you plan to be living when you spend these savings? If in the UK then you will not lose anything even if the pound devalues.

anonymon

masonic wrote: »

I wouldn't advise becoming a currency speculator.

That is the opposite of what I'm trying to do, I want to avoid having all my eggs in one basket. Much like an index tracker avoids speculating on one company by having a small investment in them all I would like to have my money spread across the major currencies to reduce risk of one crashing.

mgdavid wrote: »

where do you plan to be living when you spend these savings? If in the UK then you will not lose anything even if the pound devalues.

I'm not sure, possibly Germany, possibly the UK and possibly somewhere else. We have not decided yet.

apt

If all your spending is in UK currency you are introducing a currency risk not reducing it by holding foreign currency.

masonic

anonymon wrote: »

That is the opposite of what I'm trying to do, I want to avoid having all my eggs in one basket. Much like an index tracker avoids speculating on one company by having a small investment in them all I would like to have my money spread across the major currencies to reduce risk of one crashing.

Possibly the easiest way to do this would be through spread betting on the relevant currency pairs you are interested in hedging, but normally you would do this to hedge exposure to foreign currencies back to sterling rather than the other way around, but in principle it could be used this way. Look out for roll costs and preferably opt for a longer term market in which the roll costs are included in the initial spread.

Of course, you might want to stick some in gold in case all of the currencies crash

IronWolf

I hedge GBP using spreadbetting, but this is because i hold shares in USD, aUD etc, if you dont then theres nothing to hedge imo

horace972897

Can you explain how Ironwolf?

anonymon

apt wrote: »

If all your spending is in UK currency you are introducing a currency risk not reducing it by holding foreign currency.

I'm not spending the money at the moment, I'm saving it. In a couple of years time I will be likely spending it but I'm not sure yet in which currency.

mgdavid

anonymon wrote: »

I'm not spending the money at the moment, I'm saving it. In a couple of years time I will be likely spending it but I'm not sure yet in which currency.

Well if you don't know which currency you want to spend it in, you can hardly hedge against that currency can you?

anonymon

mgdavid wrote: »

Well if you don't know which currency you want to spend it in, you can hardly hedge against that currency can you?

What you've said there doesn't really make sense. I'm trying to hedge against the risk of any one currency devaluing substantially. At the moment all my money is in GBP, supposing it was to become worth half as much relative to the Euro, and I end up living in Germany, I will be much worse off.

(If I did know which currency I was to be spending I would not want to hedge against it...)

(Also FWIW I think you're wrong in your assertion that it is not useful to hedge against your own currency even if you only spend money in that currency, but that is a separate discussion.)