Saving abroad

oliviarose

I have a holiday home abroad, within the EU, and the savings accounts there have much higher interest rates, compared to the UK. Is there any reason I am missing as to a reason not to open a savings account in another country?

Ballard

Presuming that it's in a different currency you would have foreign exchange risk if you will eventually need sterling. If the rate goes against you it's quite conceivable that you'd end up with less GBP than you originally started with. You might end up with more but it'd be a gamble.

You'd also have the risk of exchange controls being introduced which could mean that you mightn't be able to retrieve your funds at all.

At first glance it might look obvious to go this route but it's not a good idea unless you like to gamble.

HappyMJ

oliviarose wrote: »

I have a holiday home abroad, within the EU, and the savings accounts there have much higher interest rates, compared to the UK. Is there any reason I am missing as to a reason not to open a savings account in another country?

Currency risk.

You could open an account in another country with a lower interest rate yet make more than you would by putting your money into UK savings as the exchange rate move in your favour.

There are also charges to pay when you convert your currency from GBP to another currency and back again making the returns lower.

AndyT678

https://en.wikipedia.org/wiki/Interest_rate_parity

+ the already mentioned transaction costs, liquidity risk and potential for capital loss depending on the amount and country involved.

Ballard

AndyT678 wrote: »

https://en.wikipedia.org/wiki/Interest_rate_parity

+ the already mentioned transaction costs, liquidity risk and potential for capital loss depending on the amount and country involved.

I don't think that the OP was interested in arranging a forward fx as this would negate the interest rate difference so there would be no point. They simply wanted to buy a currency, deposit it for a period and take a punt on the fx rates.

ManAtHome

Which country and currency? Only asking as Euro deposits seem to be lower interest rates than Sterling and there was a big scandal a couple of years ago in Spain where banks were selling subordinated debt as savings products.

Scarpacci

Moving away from the savings aspect, which is problematic for the reason everybody's mentioned: currency risk, there might be some logic in opening an account for that reason but as it relates to your holiday home and expected spending in the other country.

So not to move significant savings over there, but to keep an amount appropriate to your planned trips. Money which you don't envisage a need to move back to the UK, with the understanding you could get less back if you do so.

The idea would be to hedge your risk of the pound falling in value, making your trips to that country more expensive. You would need to consider how much you are comfortable keeping in the country, cost of transfers or the account itself, and any questions over the bank/product/local regulation.