Telegraph.co.uk: “Why expats are fleeing sterling”
Expats are increasingly moving their savings into the currency of the country they are living in, as a continued weakness in the pound makes sterling less appealing.
The pound has dropped by around 10pc against the euro in the past six months, and just 13pc of Britons abroad are holding money in sterling, compared with double that figure in September 2011, according to research from Lloyds TSB International.
Nearly three quarters of expats are now holding their savings in their local currency, according to the survey, as they take advantage of the higher base rates in their chosen countries to boost the interest on their savings.
Andrew Pipe, senior economics adviser at Lloyds TSB International, said: "The current sterling weakness versus the euro is primarily due to returning confidence in the single currency rather than a view that the UK outlook is poor.
"Between mid-2011 and mid-2012, the risk that the eurozone could break up increased significantly, giving a strong incentive for expats and investors to park currency in sterling and protect themselves against redenomination risk. Following the European Central Bank (ECB) commitment to do whatever it takes to ensure the survival of the euro, this risk has dropped and consequently money has started to flow back out from sterling into the euro."
One of the most important aspects for any expat looking to boost their savings is the interest rate they can get from an account, and with the Bank of England base rate at an all-time low, it is a struggle to find interest rates on any sterling-denominated accounts that even beat inflation.
The base rates for the various central banks vary widely. The Bank of England's is at 0.5pc, while the ECB rate is 0.75pc. But further afield, in other popular expat destinations, the central bank rates are much higher. For example, the Reserve Bank of Australia has left its cash rate, as it is known, at 3pc for February, while the Reserve Bank of New Zealand has left its cash rate at 2.5pc.
This has resulted in expats in Antipodean countries favouring their local currencies the most, according to Lloyds TSB International, which is unsurprising as local savings rates are likely to be higher.
The rates available on savings in offshore accounts held in sterling are pretty derisory. For instance, the Nationwide International Bonus Access Account Issue 5 is paying 1.6pc - including a bonus of 1.10pc for 12 months - on deposits of £25,000 and above, according to the statisticians at Moneyfacts.
If you are prepared to give notice before you make a withdrawal, you can get 1.8pc on the same amount from the Nationwide International Bonus 95 Account Issue 4, but as the name suggests, you need to give 95 days' notice before taking your money out.
The euro-denominated accounts are paying similar amounts. Top of the list is the Permanent Bank 35 Day Notice account, which pays 1.8pc on €25,000 - the equivalent of £21,552 in sterling at the time of writing, according to currency specialists Moneycorp. So you can deposit less in sterling terms, give less notice, and still get the same rate on this account, which is a better deal than you would get from the sterling account paying the same interest rate.
If you take the US dollar accounts, the same applies. The top-paying account in this sector, according to Moneyfacts, is the Lloyds TSB International International Bonus Saver Account, which is paying 1.51pc, including a 1pc bonus for 12 months, on deposits of $5,000. This is the equivalent of £3,247 at the exchange rate at the time of writing. For the top-paying accounts in the Moneyfacts tables, you would not even be able to access a sterling account with a deposit of less than £5,000.
Of course, the savings rate is only one aspect to consider if you are moving your sterling to another currency. The far greater risk to your wealth is losing a significant amount of money on your exchange deal, and the so-called "currency wars" in the foreign-exchange markets are not helping Britons moving their money from pounds.
Sterling's weakness means it is difficult to get a good deal at present when you are moving your money overseas. Had an expat moved his or her money into euros in August last year, they would have benefited from the euro rising by around 10pc against sterling between then and now, as confidence in the pound and the UK economy in general has ebbed away. In contrast, confidence in the eurozone has returned, and is currently much higher than it was last year.
As a result, the number of expats holding nearly all of their savings in euros has gone up, from 19pc to 21pc in the last year in France, and 23pc to 25pc in Spain, according to the Lloyds TSB International figures.
Where currencies will move next is a moot point, and there are concerns that traditional market forces - how many people want to buy or sell a currency - are being stymied by the interference of politicians and economists who are trying to weaken their country's currency to improve their economy. For instance, Mario Draghi, president of the ECB, is not happy about the strength of the euro because of the impact a strong currency has on export prices. While there is increased confidence in the single currency, which looked in danger of disappearing altogether last year, the ECB is monitoring its strength.
Salman Ahmed, strategist on the fixed- income team at Swiss bank Lombard Odier, said: "Not surprisingly, Draghi's comments on moves in the euro have poured further fuel on the global currency war debate. In the post-crisis, zero interest-rates/low-growth world, foreign exchange is becoming an important policy tool. However, we are still far away from the experience of the Thirties, when competitive devaluations were augmented with capital/trade controls in an effort to gain advantage in the external sector.
"So far, major central banks - with the exception of those of a few Asian countries - are using monetary policy, or its outlook, to induce changes in their exchange rates, which, over the short term, imply easier global monetary policy and thus financial conditions."
Countries worldwide are working hard to devalue their currency in a bid to make their exports cheaper and boost their economy. The problem is that when so many countries are using this same strategy, it becomes very tough for those who need to move their money from one currency to another.
There are other difficulties in relation to this. As countries use measures such as quantitative easing to weaken currency rates, this prevents the markets from setting rates in the traditional way.
Clive Dennis, head of currency at Schroders, said: "The currency wars have been in play in an indirect fashion for some years already via competitive bouts of money printing by developed over-indebted countries and the corresponding FX reserve build-up in emerging markets.
"With little growth momentum and exhausted monetary policy, politicians in the developed markets are getting nervous for their own survival. Rules - fiscal and monetary - get bent more and more out of shape, and beggar-thy- neighbour policies rise up as the only option left. That gets reflected in trade wars, protectionism and currency devaluation, although nobody likes those terms. We now call them 'currency wars'."
Yet the G7 and G20 countries have all agreed last month (February) that they will not engage in currency-weakening strategies.
For expats, the impact of these moves is problematic, especially when it comes to timing their currency moves. If they are moving a large amount of money overseas as they emigrate, or want to keep their savings in their local currency, the point at which you make this move is critical to how much money you can lose. The more you are moving, the greater the effect of currency movements on your savings.
Richard Musty, director at Lloyds TSB International Private Bank, said: "Expats who sell sterling as a matter of course, such as those receiving a UK pension that they transfer into their local currency, will be out of pocket as a result of sterling weakness. While those buying sterling, for example when they pay UK bills or a mortgage in Britain, will benefit from a weak pound.
"The crucial point for expats, who often have a high foreign-exchange exposure, is not to try to predict movements in the currency markets, but to manage their currency risk instead. They should think about which currency they are likely to need their savings in for the long term and then consider moving a sensible portion of their money into that currency, thereby reducing their exposure to the
foreign-exchange markets. Planning ahead is the key."
As with all money moves, you want to keep your costs to a minimum. But you need to understand where your costs are going to come from. You will be asked to pay a fee for the transfer in many cases, and this can vary from nothing with the Lloyds TSB International's Premier International Account, to as much as £25 or £40 with other accounts and banks.
The greater risk to your money is not from these fees, it is from the exchange rate you settle on. Ideally, you need to take the exchange rate and the fees into account at the same time, so you know what the costs are going to be and how much money you will actually end up with when the transaction has been completed.
It is important to find out what rates are available when you are looking to transfer money, and you should research the market as the rate you will receive will vary from one institution to another.
Currency exchange specialists such as HiFX, Currencies Direct and Moneycorp - there are many more - can often give you a better rate than you will get from a bank. You can compare exchange rates on websites such as moneysupermarket.com, and it is worth the effort. Let's say you are transferring £50,000 to euros - at a rate of €1.16 to the pound, you would have €58,000, less fees. But at €1.15, you would have €57,500, less fees - costing you €500 simply because you ended up with a worse exchange rate.
If you are moving your money overseas on a more regular basis, you are, of course, exposing yourself to these potentially extreme fluctuations more often. Since the start of the year, the pound
has fallen from €1.23 to €1.16, so you would have got around 6pc less on your transfers in just a six-week period.
Mr Pipe said: "Longer term, although the UK has significant challenges in returning to sustainable economic growth and securing a stable outlook for public finances, the eurozone arguably faces bigger challenges still. Over the longer term, I'd expect sterling to regain some of its recent lost ground against the euro."
Of course, foreign exchange is a lucrative market and there are new services popping up all the time. For example, one of the latest ways you can move money overseas is by using your Facebook page. Azimo.com, a UK start-up, allows you to send money to more than 125 countries and territories through Facebook, and it is aiming to provide a service to rival the likes of Western Union and Moneygram, which dominate the market for remittances to home countries. The market is very large, with over $534bn sent home by migrant workers in 2012.
Azimo charges 1pc-2pc of the transaction amount as a fee, making it cheaper than many of its rivals - the company estimates that those sending money home in 2011 could have saved around £200m collectively in fees.
Michael Kent, the founder of Azimo, said: "Unlike other areas of financial services, social media is very applicable to remittances. With more than a billion people around the world using Facebook to keep in touch with friends and family, it seems only natural it should become a channel for sending money."
"We surveyed our UK remittance customers and found nearly
three-quarters regularly use Facebook - and of those, over 60pc were in touch with the person they wanted to send money to. By adding this new Facebook functionality to our web-based service and our mobile apps for Android and iOS, we're taking the hassle - and the cost - out of remittance payments and money transfers."
No matter how you choose to send your money abroad, you must be sure you are getting the best deal you can, and that your transactions are secure. The savings are well worth the effort.
Original source: Telegraph.co.uk please click here