Working abroad - saving in UK

kerfootuk

My daughter works and lives in Geneva and has suggested she opens a savings account in the UK due to poor rates over there.
What are the pros and cons in doing this?
Thanks.

purch

Does she need to hold Sterling for any reason ie. is she likely to return here in the future to live ?.

Sterling is relatively overvalued at this time, and therefore it' s likely her savings in GBP would lose value against the CHF over time, which may or may not be compensated by the higher Interest rate a GBP holding would attract.

Of course if she will want this money to be in GBP in the future then this consideration is not as important, but it is still relevant and needs to be factored into any decision.

It is quite likely (in my opinion) that over the next 2 or 3 years, funds held in CHF and earning a low interest rate will be worth more in GBP terms due to the devaluation of GBP over time, than funds held in GBP throughout that time and earning a higher interest rate.

kerfootuk

Thanks for the reply. I don't think she will come back to live permanently in the UK, is it likely that the pound will devalue by 4/5% against the CHF?
She might buy property in Geneva in the future so it might only be in a savings account for a few years. The interest rate in Geneva is only 2% according to my daughter.

egamar

purch is right about the issues involved when currency fluctuations have to be taken into account. Exchange rates can change significantly in a short period, extinguishing any difference in interest rates on savings.

Having said that - what can you do about it? Well, you can take a view like purch has - sterling is overvalued and it's probably a reasonable bet to save in CHF.

Or maybe you can look at it from another side and ask "How does my net disposable income relate to what it would be if I were living in the UK? Am I (much) better off than I would be at home (even with the current exchange rate)?"

If yes, then the source of most peace of mind on this intractable question might come from saying "I'll save in £ now, because I'm comfortably off, and I won't worry about whether I could have done better or not".

On the other hand, depending on what type of personality your daughter has, she might want to say "I'll save in CHF right now, but any time I see the exchange rate has moved significantly favourably I will transfer from CHF to £" but carry on saving in CHF until the next opportunity.

I must admit I haven't checked the volatility of the CHF against the £, but I'm trying to take a philosophical view of the dilemma your daughter faces, for which there is no one perfectly right answer (except in hindsight).

Having dealt with a bit of philosophy, some practical issues:

A disadvantage of having her savings here is that if she needed them back in Geneva at any time she might take a loss on the exchange rate (and incur possibly disproportionate charges) sending £ back to CHF.

Another con is the cost of transferring monthly amounts from CHF to £ in the UK. I'm guessing, but her bank would probably charge a fee and a commission (and offer a lousy exchange rate too). This might be - what? - the equivalent of £25 fee, 0.5% - 1% commission say, and a 2% worse exchange rate. Factor that into the equation and she might even be better off saviong in CHF than she would be in £.

She needs to do a bit of research about what the costs of sending CHF to the UK would be for her, and also - for when she comes home - the cheapest way of getting a huge wodge of CHF converted into £!

I'm sure there are more issues, but that taters are done, so I have to go and mash them.

egamar

kerfootuk wrote: »

Thanks for the reply. I don't think she will come back to live permanently in the UK <snip>
She might buy property in Geneva in the future

That makes the decision easier: don't take a risk with the currency you earn and spend in. Save it in CHF.

Exchange rate fluctuations and charges could wipe out any benefit, and end up costing. It's not so much about what will happen (since no-one can know), it's about the risk of something happening and taking a view depending on your attitude to that risk.

Voyager2002

She might consider keeping her savings in euro or dollars, since there is probably less scope for these to fall against the CHF than there is with sterling.

She also needs to look at the various places where she can hold accounts denominated in these currencies. Most UK banks offer off-shore accounts for expatriates, and these can generally be denominated in a number of different currencies. In fact, a number of banks within the UK also offer dollar and euro accounts. For these, her expatriate status might offer tax advantages.

If she is feeling really adventurous she might like to open an account denominated in Chinese yuan (renminbi). Now that is a currency that has lots of scope to rise, depending on the politics...

egamar

Voyager2002 wrote: »

She might consider keeping her savings in euro or dollars,

Except that she seems to be emigrating to Switzerland permanently, so she earns and spends in CHF ....

purch

As a rough guide GBP/CHF has gone from under 2.20 to closer to 2.45 over the past 3 years.....in other words GBP has got stronger...which would mean that if you had converted CHF 5,000 to GBP back then, and converted the funds back to CHF now you would have made a profit of CHF 500 even without counting any Interest you might have earned.

In my less than expert opinion the GBP/CHF rate is more likely to retrace itself back towards 2.20 over the next few years which basically means you would need to earn CHF 500 more in interest in the U.K. to cover a potential ( of course not guaranteed ) loss on the currency exchange.

P.S. EUR/CHF is a slightly more stable exchange rate, but the difference in potential interest rate earning possibilities is also less

Voyager2002

egamar wrote: »

Except that she seems to be emigrating to Switzerland permanently, so she earns and spends in CHF ....

True, but the prospects for an investment in euro or dollars to increase in value against the Swiss franc are in my opinion pretty good. OTOH, for reasons stated by others, I think she would be foolish to keep her nest-egg in sterling.

egamar

Voyager2002 wrote: »

True, but the prospects for an investment in euro or dollars to increase in value against the Swiss franc are in my opinion pretty good. OTOH, for reasons stated by others, I think she would be foolish to keep her nest-egg in sterling.

The old "risk vs. return" question, eh?

Cook_County

It would also make sense to know which tax advantaged investments are available in the Canton where she lives & pays tax (Swiss tax fluctuates widely from one Canton to another).