Saving in other country. (Saving Account)

CFL_2

Dear Users,

As we all know that the ISA interest rates are far too low in this county and I am not really sure how many per cent will increase in the future. I am planning to buy a property in 3-4 years time.

I managed to put £17000 in my ISA.

I come from Turkey and the interest rates in Turkey are 13% if you open a new saving account. I made some sum.

If I exchange £17000 at rate of 4.60 Turkish Lira. It will be 78200 Turkish lira and if I put this money for a fixed saving account with 13%. at the end of the year I will get 8500 Turkish Lira Interest which is £1847. I don't know what will happen if the exchange rates change, of course it is a risk.

I am in the middle now. Should I open Help to Buy ISA and put money each month and take the rest of the money to Turkey and invest there.

When I buy my property I will try to exchange Turkish Lira in Pound at a lower rate not to lose any money by exchanging.

Your opinion would be much appreciated.

Thank you.

fwor

It looks a great scheme, and it makes you wonder - why does everyone not do it?

Which should make you wonder why they don't. That should raise the question: is there a difference in the rate of inflation in the two countries and, if so, what will that do to the exchange rate?

[Edit: I should add that this is an extremely simplistic view, but it makes the point that you will be 100% dependent on what the market has done to the exchange rate in the intervening period. It doesn't matter how hard you try to get a better exchange rate - the market will determine that, not you.]

jimjames

CFL wrote: »

If I exchange £17000 at rate of 4.60 Turkish Lira. It will be 78200 Turkish lira and if I put this money for a fixed saving account with 13%. at the end of the year I will get 8500 Turkish Lira Interest which is £1847. I don't know what will happen if the exchange rates change, of course it is a risk.

What happens if the rate changes during the year? Your 78200+8500 = 86700 and the exchange rate is now 8 Lira to the £ so you have £10837. Do you think it would be such a good idea now? Of course the rate may not change that much but when a currency like the Euro has varied by 50% or more over different timescales then a less traded currency may vary more.

bigadaj

As a Turkish person I would have thought you'd have a more detailed knowledge of the exchange rate, currency graphs show the exchange rate to have dropped from around 2.5 to 4 or more, so an average devaluation of 5-10% per year. This still gives an opportunity for profit in your scheme but the lira isn't teeth hardest of currencies so there's always the risk of exchange rate controls being introduced to stop you changing back into sterling.

It's a risk but up to the individual.

AndyT678

I think you need to google the phrase "interest rate parity".

If your plan was likely to work then everybody would have their money in offshore accounts that pay high interest.