5 ms·

I always wondered why there was seemingly no (marketed) business in foreign savings accounts. If I'm willing to ride the exchange rate risks, surely there's so

by hakfoo 4y ago

I always wondered why there was seemingly no (marketed) business in foreign savings accounts. If I'm willing to ride the exchange rate risks, surely there's some bank in Honduras paying a higher rate on Lempira-denominated accounts. Compared to half the derivative products on the market, it's a straightforward offering, and it also feels an ideal product for flim-flam direct-to-consumer marketing-- backed by "government bank insurance" while dodging that it's hardly the FDIC. Is there some regulatory angle that prevents it? I had always heard some foreign banks are uneasy about taking on American customers due to having to deal with the American tax infrastructure, but that wouldn't squash the entire product category.

refurb 4y ago
https://en.m.wikipedia.org/wiki/Interest_rate_parity https://en.m.wikipedia.org/wiki/Interest_rate_parity Over time any interest rate arbitrage is priced into exchange rates. So yes, you can get 7% on Vietnamese Dong deposits, but the currency will likely lose 6% of value against the USD over the same time period.
JumpCrisscross 4y ago
> why there was seemingly no (marketed) business in foreign savings accounts Opening accounts for Americans is expensive [1]. Offshore banks thus tend to focus on ultra high net worth Americans. [1] https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance...
ilammy 4y ago
You don't think savings accounts yield interest out of charity, do you? In most cases they are a way to purchase bonds and alike for people who don't want (or don't know how) to deal with that, and the bank pocketing the difference for their services. If you're sophisticated enough to invest in a foreign country with a goal to actually get real returns and enough capital to make the hassle worthwhile, you'll find a way to do that better than a savings account. But of course there is "market" for exchanging your USD into funny money at predatory rates, letting you experience these juicy 20+% APY, only to realize later that the country makes it illegal to transfer the money out – or you're due some extra fees, and taxes, and surcharges, and more predatory exchange rates – and in the end if you succeed to get your money out and factor in funny money devaluation and USD inflation, you end up barely making more profit than you'd get in a more stable economy. That's assuming said foreign institutions are willing to deal with a US citizen in the first place.
- imtringued 4y ago
  >In most cases they are a way to purchase bonds and alike for people who don't want (or don't know how) to deal with that, and the bank pocketing the difference for their services. Yeah and banks basically gave up on buying corporate bonds and only want treasuries or reserves. QE is basically a way to let banks use your savings account to buy treasuries. The commercial bank is making the decision on what to invest in, not the Fed. The Fed is actually just giving commercial banks as many reserves as they request.
- selimthegrim 4y ago
  The best story of this kind is Sam Sloan (of Sloan vs SEC fame) having had this idea and trying to get his money out of an Afghan bank account right around the coup and Soviet invasion.
dragontamer 4y ago
> I always wondered why there was seemingly no (marketed) business in foreign savings accounts. Can't you just skip the hassle and just buy foreign bonds from the market? Its not too difficult to buy international bond funds. For example, SDEU (iShares German Government Bonds).
halotrope 4y ago
You can do that with some brokers. e.g Interactive Brokers passes through a slightly adjusted base rate on both credit and debit balances. So you could technically do a carry trade borrowing USD on a 1.5 margin and exchange that for e.g rubles with a 20% interest rate. If you can stomach the market fluctuations and as a consequence the margin requirements. FX markets are often calmly trending for years with some sudden and sensational shocks. Like Deutschmark/Gbp EUR/CHF or recently the Lira or Ruble implosions. Overall very interesting but way over the risk tolerance of people who deposit their money in CDs
deleted 4y ago
[deleted]

by hakfoo 4y ago

refurb 4y ago

https://en.m.wikipedia.org/wiki/Interest_rate_parity https://en.m.wikipedia.org/wiki/Interest_rate_parity Over time any interest rate arbitrage is priced into exchange rates. So yes, you can get 7% on Vietnamese Dong deposits, but the currency will likely lose 6% of value against the USD over the same time period.

JumpCrisscross 4y ago

> why there was seemingly no (marketed) business in foreign savings accounts Opening accounts for Americans is expensive [1]. Offshore banks thus tend to focus on ultra high net worth Americans. [1] https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance...

ilammy 4y ago

You don't think savings accounts yield interest out of charity, do you? In most cases they are a way to purchase bonds and alike for people who don't want (or don't know how) to deal with that, and the bank pocketing the difference for their services. If you're sophisticated enough to invest in a foreign country with a goal to actually get real returns and enough capital to make the hassle worthwhile, you'll find a way to do that better than a savings account. But of course there is "market" for exchanging your USD into funny money at predatory rates, letting you experience these juicy 20+% APY, only to realize later that the country makes it illegal to transfer the money out – or you're due some extra fees, and taxes, and surcharges, and more predatory exchange rates – and in the end if you succeed to get your money out and factor in funny money devaluation and USD inflation, you end up barely making more profit than you'd get in a more stable economy. That's assuming said foreign institutions are willing to deal with a US citizen in the first place.

imtringued 4y ago
>In most cases they are a way to purchase bonds and alike for people who don't want (or don't know how) to deal with that, and the bank pocketing the difference for their services. Yeah and banks basically gave up on buying corporate bonds and only want treasuries or reserves. QE is basically a way to let banks use your savings account to buy treasuries. The commercial bank is making the decision on what to invest in, not the Fed. The Fed is actually just giving commercial banks as many reserves as they request.
selimthegrim 4y ago
The best story of this kind is Sam Sloan (of Sloan vs SEC fame) having had this idea and trying to get his money out of an Afghan bank account right around the coup and Soviet invasion.

dragontamer 4y ago

> I always wondered why there was seemingly no (marketed) business in foreign savings accounts. Can't you just skip the hassle and just buy foreign bonds from the market? Its not too difficult to buy international bond funds. For example, SDEU (iShares German Government Bonds).

halotrope 4y ago

You can do that with some brokers. e.g Interactive Brokers passes through a slightly adjusted base rate on both credit and debit balances. So you could technically do a carry trade borrowing USD on a 1.5 margin and exchange that for e.g rubles with a 20% interest rate. If you can stomach the market fluctuations and as a consequence the margin requirements. FX markets are often calmly trending for years with some sudden and sensational shocks. Like Deutschmark/Gbp EUR/CHF or recently the Lira or Ruble implosions. Overall very interesting but way over the risk tolerance of people who deposit their money in CDs

deleted 4y ago

[deleted]