A whole world of saving and investment opportunities are open to expats, but low-interest rates have offered meagre returns in recent years.
The Bank of England and US Federal reserve have pegged interest rates at record lows since the downturn in a bid to stimulate economic growth with varying successes to report. While interest rates have lingered below 1%, stock markets have shown some dramatic increases and have hit record highs around the world in 2017. The evidence that stocks and shares typically show a better return than other investments over the long term is the Barclays Equity-Gilt Study.
Market analysts have crunched the numbers recorded by the study for more than 115 years. The research looks at how cash savings have performed against equities and reveals that in any two-year period since records started, investors have a 68% higher chance of equities beating interest on cash savings. The records do show that in some years, investors would have lost all their money in a crash, but in others would have doubled their stake.
Over 18 years, a reasonable term for a pension, investors can expect equities to beat cash 99 times out of 100.
Foreign banks and some offshore branches of British banks and building societies in places like Gibraltar, The Channel Islands and the Isle of Man will offer savings accounts in various currencies to expats.
Generally, an expat should be tax resident in the same country as the bank is based to open an account.
Interest rates are typically quite poor, but cash is safe on deposit if the amount in the account is lower than the local financial compensation scheme offers if the bank goes to the wall.
A handy check list for savings accounts is:
Instant access savings accounts allow you to withdraw your money as and when you need it.
Some instant access accounts come with a plastic card that can be used to take out money from cash machines, some offer over-the-counter withdrawals and many allow you to transfer money out of your account online, penalty-free.
Saving in an instant access account makes sense if you think you might need to withdraw some of the cash you’ve put aside. ‘Emergency savings’ should be kept in an instant-access account so you won’t struggle to get at them in a crisis.
Notice savings accounts work in a different way to instant-access deals.
Instead of having quick access to your money when it suits you, saving in a notice account means you’ll have to tell your provider in advance that you want to make a withdrawal.
Some notice accounts demand that you let them know you intend to withdraw money 30, 60 or 90 days ahead – so these accounts are unlikely to suit you if you may need to get at your savings unexpectedly.
If you do make an emergency withdrawal from a notice savings account, you’re likely to lose some interest.
In the past, notice accounts have offered higher interest rates than instant-access deals – but this is no longer always the case. Therefore, before opening a notice account, it’s worth checking to see whether you could get the same return on your money without restricting your access to it.
Regular savings accounts require customers to deposit money each month, without fail – so they are ideal for savers who are just starting out, or who wish to drip feed cash into their account in a disciplined way.
Regular savings accounts may limit the number of withdrawals you can make each year, which means it may not make sense to use one for emergency savings.
In addition, a regular savings account is likely to restrict you from investing more than a certain sum each month – preventing you from placing extra cash in your account as and when it suits you.
Fixed-rate bonds are savings accounts that offer a fixed interest rate on your cash for a set period of time. While they often come with higher interest rates than instant access, notice or regular savings accounts, opening one will mean giving up access to your money during the term of the bond.
Fixed-rate bonds can extend over one year, two years – even three, four or five years. Generally, the longer you’re prepared to lock your cash away for, the higher your return will be.
While it may be possible to get your money out of a fixed-rate bond in an emergency, it’s likely you’d stand to pay a hefty interest penalty for doing so. Therefore, tying up your cash in a fixed-rate bond is only a good idea if you’re confident you won’t need to get at it.
Offshore investment offers a range of equities, funds, commodities and currencies to expats which often come with attractive tax incentives. The investment opportunities available will depend on the place where an expat lives, as local laws and tax rules will make some investments more worthwhile than others. The vast array of products includes the Qualifying Recognised Overseas Pension Scheme (QROPS), investment bonds and direct investment into equities.
Investment starts with benchmarking where you are and factors that might influence financial decisions, like a change of job, moving home, getting married or having a child. Expats also need to consider their attitude to risk. That means thinking about how much money is available to invest and if they can afford to gamble losing the stake against seeking a higher investment return. Another part of benchmarking is looking at what savings and investments have already been made and how they are performing.
The impact of changing currency exchange rates should also be part of the plan. Once benchmarking is complete, discuss how your investment objectives with a professional regulated adviser. They will recommend a strategy and build in regular performance reviews to make sure you are on-track.
How currencies rise and fall against each other is a vital aspect of investing for expats. The low Pound is boosting the UK stock market as most large British companies earn their money from sales abroad.
Investing in a currency other than the one you spend is speculation and a high-risk strategy, as monitoring exchange rates and costs of switching into a currency you can spend is a major undertaking.
Cost is the main reason DIY investors turn to online platforms, according to recent research. But cost is only part of the equation for investors. Of course, the amount of money a financial adviser charges must be considered in working out a return on investment.
Financial advisers offer a lot of value-added benefits to investing. The management team should include researchers and analysts to keep an eye on markets, risks and opportunities. With markets open around the world 24/7, this is a major task and one that a sole investor will find almost impossible to complete.
A large fund will also have millions of pounds invested, which gives the manager access to discount deals and exclusive offers from big brand financial firms that are simply unavailable to the DIY investor.
If DIY investment returns cannot exceed the money made by a financial adviser, it is difficult to see why a sole investor would want to spend the time and effort required to manage their own money.
Expats are top targets for investment scams, which can range from freeing up pension cash to buying into dream holiday resorts. The general rule is non-regulated advisers selling investments with yields that seem too good to be true are probably fraudsters. Do not part with any cash or sign any contracts until you have run the proposition past a professional adviser.
Typical scams have warning words to watch out for, such as carbon credits, hotels and resort development, ethical investments, coloured diamonds and fine wines.
Fraudsters are good talkers but ask yourself why they have approached you, because it is likely to have been a chance meeting in a bar or a cold-call. Then ask why they are offering you the opportunity, because if it is so good they would keep the details private and take the profits.
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