Should I Leave Money Invested in USA or Move Abroad for Higher Interest Rates?


Gadget

Should I Leave Money Invested in USA or Move Abroad for Higher Interest Rates?


mtdarland

This hits on a subject I've been personally researching (foreign bank accounts): Re Andy's advice about keeping the money in the US, I agree.

You can get dollar denominated accounts in many countries at rates higher than the US, but there are a lot of caveats. For example, Ukraine pays ludicrous interest rates on US dollar accounts, but if you want to get the money out, you have to do it in person (read the fine print on those bank sites!), and given the region's instability... Basically, don't go blindly chasing yield.

But if you have to keep money in another country's bank, some questions to ask:
1. Keep in dollar denominated account or in local currency? You'll get higher interest in local currency, but to get the true value, you need to compare that rate against the rate of inflation of the currency. Using Guatemala as an example: The quetzal inflates at about 3.4percent annually (http://www.xe.com/currency/gtq-guatemalan-quetzal) vs. the US dollar at 1.6percent. So subtract that difference from your bank's interest rate to get the 'real return'.
2. Bank risk. Most "non-1st world" banks don't have anything like the FDIC (or reserve it exclusively for their own citizens). Find the banks that the elites and big business in the country use. Bonus points if the bank has survived multiple governments.
3. Currency risk. Watch out for Argentinian Pesos :) What kind of currency controls does a country have in place? The stricter the controls, the better the chance of massive devaluation. War risk? Political instability (see #2)? Of course, this goes both ways. The US could start making it harder to transfer money to a given country.
4. Ease of getting an account. Some places you basically need to hire a local lawyer to get a checking account opened. It's just that painful. Also, FATCA has made it a bit harder for US citizens to open up foreign bank accounts. Foreign banks want US dollars, but they don't want US customers as much due to some pretty costly reporting requirements they have to do. Also, if you have more than $10k stashed offshore at ANY point in the year, you have to file additional paperwork with the IRS.

Some of the decisions might be made for you if you have to deposit money in a local CD for e.g. to gain residency. Countries check for proof of the CD when you apply for residency, but can be pretty lax about checking if you keep the CD :) This isn't due to policy, but just general laziness, incompetence or lack of resources for that government to track that sort of thing.

There are a number of online services that will transfer money from your US checking account to cash in a lot of places in the world at vastly cheaper rates than most big banks bank-wire costs (though Wells Fargo "ExpressSend" service is an interesting big-bank option if you're in the Caribbean and Central America). Not having a local account just isn't the handicap it used to be (unless your own country institutes currency controls).


Lawrence14

Good answer!


Gadget

Thank you Matt, I talked with bankers in Anguilla, Hong Kong, Lichtenstein, and with people over Skype in Panama. (etc…) And, truly enjoy listening to many in Sosua, Domincan Republic, when they were making 20 percent, and after they lost it. The boys in the DR are extremely angry at me because I told them in was a scam before they lost their money. If you have enough money that you have flown, visited, and stay in offshore countries, then thinking about this is not analysis paralysis. If you do not have sufficient money to visit them, then enjoy talking about it, and keep you money at home. And, whatever you do, stay away from Kathleen Piddicord, and International Lying.


GaryS

Have known many expats that "invested" in various things overseas, all that did "higher interest rate" things had PROBLEMS/TROUBLE later, when they wished to redeem their CD's, there are usually paid in LOCAL CURRENCY, then add fees to change back into US dollars. That's "if" it all works out well, please note, Mexico has various "great" interest rate "deals", but please note, that Mexico and other countries "often" DEVALUE their currency, sometimes a few times per year.."if" you get your money out before the next devaluation, all is good, otherwise it's little more than YOU LOSE MONEY! PS: DON'T BUY REAL ESTATE in the 3rd world, it is ALWAYS trouble..try to sell as quick as you bought it, you'll grow old and DIE before the sale closes! Caveat Emptor!!


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