Expats scratching around for reasonable returns on their savings accounts are finding most offshore banks and building societies are cutting rates to less than generous levels.
Interest rates have headed down for months – but playing the margins is the name of the game for some savers.
Spotting rate anomalies can bring profits – for instance a bank might pay 1.5% on sterling but 1% on Euro accounts.
Multiple currency accounts are about the only option left for expats to try to gain a little extra from savings rates – but hedging against currency exchange rate fluctuations can flatter to deceive.
Although making gains is possible – the risk of piling up losses is also ever present.
Spotting margins
Many offshore banks provide multi-currency accounts offering balances in Sterling, US dollars or euros.
Some banks let customers switch their cash between currencies in the same account.
The obvious benefit is standing to profit from moves in currency values. With the Pound recently sliding against the euro and US dollar, hedging makes sense.
Effectively, what you lose in Sterling is more than made up from profits in the corresponding dollar and euro accounts.
Any expat should watch out for the risk, as if exchange rates shift in the wrong direction, those fragile profits can soon mount up in to considerable losses.
That’s before any fees or charges for currency transactions or running the account with an offshore bank may also have a detrimental impact on the bank balance.
Switching savings between currencies certainly makes the world of finance more interesting, since anyone with an account in Sterling could have profited by switching to dollars or Euros in recent weeks.
Risky profits
Mark Bodega, of foreign exchange brokers HiFX, said: “Any expat who is thinking about dipping their toes into trading on currency markets should be warned that this is a high risk strategy where a range of factors can quickly turn a profit into a loss.
“Also, they need to be careful that they might lose on a currency rate movement and then lose more once bank charges are taken into account for moving funds between currencies.
“Currency speculation is a high risk and complex business and not for the faint-hearted.”
Convenience is one of the positives for having a foreign currency account, as cash is always available in the right currency to pay bills.
Keeping different accounts under one roof also makes transfers and service calls to the bank easier.
