Bank of England governor Mark Carney’s grand plans for interest rates are another kick in the teeth for expats.
The former governor, Mervyn King, did little to help retired expats on a fixed income by engineering the lowest official interest rate ever – 0.5%.
The rate has sat at that level since March 2009 knocking the stuffing out of savings rates that were further buffeted by raging inflation and billions of pounds of quantitative easing.
Next came the government’s Funding for Lending program that really put the boot in expat savers when they were down.
Funding for Lending lets banks and building societies borrow cheap government money, providing the cash goes to businesses and homebuyers.
Bank’s don’t need savers
This has led to a disaster for expats because lenders no longer have to attract money in by offering competitive savings rates because all the money they need is available from the government.
And now the icing on the cake is Mark Carney’s announcement of monetary policy that pledges the official interest rate will not rise until the economy grows enough to create 750,000 new jobs.
Of course, he has added some caveats, just in case he needs to tweak the system, but his remarks designed to give confidence to business and homeowners have left expat savers reeling as interest rates offered by international offshore banks and building societies drop out of sight or they close up shop completely.
With inflation running at 2.9% in the UK and around 1.5% to 2.5% in most expat destinations, retirement savers are starting off in with a negative impact on their spending power before they pay any income tax that might be due in their country of residence.
Lost spending power
Just 12 months ago, before the advent of Funding for Lending, the best six month fixed rate for savings was 2.92% from Permanent Bank International on a minimum deposit of £100,000 or 2.77% on £25,000 with the Isle of Man branch of the Bank of Ireland.
Today, the best six-month fixed rate hovers around 1.6% on £50,000 in an account with Nationwide International.
Expats do not have to be maths wizards to see that’s an effective rate of 0% at best when inflation is taken into account.
One year fixed rates prove the point – £100,000 at 3.5% with Santander Isle of Man a year ago is worth £103,500 today. Take that £100,000, keep the profit and stick it with the current best 12-month fixed rate of 1.87% from the Co-Op Bank and in a year you will have the princely sum of £101,870.
Effectively, expat retirement savers would lose spending power of £2,413 in a year before tax and inflation.