Inflation is one of the biggest enemies for expat savers – especially if they are on a fixed income.
Add in the effects of income tax on those gross interest rates posted to lure savers to deposit their cash with offshore banks and the returns are less than outstanding.
The latest average inflation rates for Europe’s major expat destinations published by Eurostat, the European Union’s official statistics body are:
-
Spain – 0.3%
-
France- 0.8%
-
Italy – 0.7%
-
Portugal – 0.2%
Two countries are returning deflation figures:
-
Greece – -1.8%
-
Cyprus – -1.3%
The best fixed rate offshore savings bond is still offered by Skipton International – paying a gross rate of 2.75% for a minimum £10,000 held on deposit until January 2019.
Expats losing spending power
Assuming average income tax is paid on any interest earned at around 20%, then an expat in France is already only receiving a return of 2.2% a year, and that shrinks even more to a measly 1.4% after inflation.
For expats on a tight budget, failing to factor in the way tax and inflation can erode a fixed income is a big financial worry.
The annual gross interest at 2.75% on £10,000 is £275, but after adjusting for tax and inflation, that figure is just £140 to spend.
The Skipton rate is a good way ahead of the rest of the market.
Next best is 2.15% fixed for three years on a £20,000 minimum deposit from the Permanent Bank, Ireland.
Adjust for 20% income tax and inflation at 0.8% and that’s really a net pay rate of 0.92%.
Shocking rates offered by offshore banks
Admittedly, inflation is likely to stay low and interest rates may start to rise, but tying up large amounts of cash for the long-term is not really a sound financial move with uncertainty over rates hovering over the horizon.
Expats looking to invest their cash for a shorter period are likely to have the banks offer shocking rates.
Permanent Bank has a string of fixed rate bond deals over 12 months to two years – paying gross rates of between 1.85% and 2.08%.
Next comes the Nationwide with 1.8% gross to savers who wish to reluctantly tie up £50,000 for three years. Santander will pay 1.6% for a minimum £500 until March 2016.
All pay less than 1% net interest after tax and inflation are added in.
