Expat Saving Rates Offer Miserable Returns

The Bank of England has pegged the official interest rate at 0.5% for five years – which is great for borrowers but awful for savers.

Along with a combination of government subsidies encouraging banks and building societies to lend without taking in deposits from savers, tax on interest earned and inflation, the net result is few expats are breaking even on savings.

A tax crack down has also seen offshore bank accounts fall out of favour, with dozens of financial institutions closing their doors to new business over recent years.

The result is limited choice and poor returns on offshore savings for expats.

Now, uncertainty about the future of long-term rates makes decisions about where to put money even harder.

Best buys for five year fixes

The simple truth is the banks that want savings on deposits tend to want larger sums in their vaults for longer to attract the best rates.

However, official interest rates are not going to stay at rock bottom forever – but taking a gamble on when they will change could mean losing money.

The best rate for expat savers, offered by Skipton International, is 2.75% requires handing over at least £10,000 for five years.

Ireland’s Permanent Bank pays 1.92% over five years, but the bank wants a minimum deposit of £20,000.

Chances are that ordinary savings rates will have overtaken the best five-year fix long before the term ends.

That means lowering the sights to a three-year term for the next band of best rates.

Tax and inflation take a toll

The Norwich & Peterborough Building Society has a competitive 2.2% fixed rate for a minimum deposit of just £1,000 over 36 months.

The Permanent Bank has a 2.15% rate for £20,000 on deposit over 36 months as well.

The rates hover just above 2% for 15 month and 18 month terms with the Permanent.

With average inflation in the Eurozone running at 1.7% over the past year, these rates leave little room for profit for expats – and if they are taxpayers, the margins probably shrink into the red.

That leaves many expats with the prospects of losing capital on fixed rate savings bonds, especially if they are coming out of a three or five year deal and are looking to reinvest.

Another decision expats need to consider are the costs of switching currencies from Sterling to the local currency, which will shave even more of the profits, if there are any.