The other day I was lamenting the fact that I can’t get any better than a 1.1% return on a CD, which means there’s no point to even consider tying up my money for such a low rate of return.
It makes it so hard to save money when the interest rate you can get at a bank is lower than the inflation rate. That’s why I’ve turned to alternative places to invest my money like Lending Club, but I don’t want to put too much money there because the risk of default could get super high if America goes back into a recession or enters a depression.
If I want a safe investment in a bank, then American banks simply aren’t the right place to put my money.
Then it hit me: what if I could invest in CD-like products in other countries that might have higher interest rates?
27 seconds and a quick Google search later I found that I can get over 5% on a 3-month Australian Term Deposit (same as an American CD) with Ubank Term deposits. Are you freaking kidding me?!
Interest Rates are Higher in Australia
People in Australia are actually rewarded for saving money with great low risk interest rates while I’m stuck here in America getting a measly 1%.
I’ve actually been wanting to get into some foreign currencies, specifically the Australian Dollar, and now I realize that I can get 5% on my money in addition to any gains (or losses) I might have against the US Dollar.
The problem is I can’t figure out how to put my money into an Australian bank. The account I linked to earlier requires that you be an Australian citizen and have a residence in Australia. I certainly don’t meet the criteria and I assume most of my readers don’t either.
Unfortunately it doesn’t look like I can become an Australian citizen very easily. I don’t have any Australian blood in my body and I have never even been there.
Readers: Do you have citizenship in another country? If so, can you get better interest rates there than are available in America? Do you know a way to invest in CDs from other countries without becoming a citizen?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
I know money magazine did an article on this a couple months ago and pretty much said it isn’t worth it after fees and currency exchange rate risk. I personally don’t know enough about it to make a judgment but I’d say the money magazine folks hopefully did their due diligence.
I understand there is currency risk, but with that risk comes the potential to get even better returns.
I trust AUD more than I trust USD. I wanted to get into AUD before I knew I could get a 5% return. It only sweetens the deal.
Yes it is a higher interest rate, but you will have currency risk as well. The Australian dollar maybe stable, but it will fluctuate with the U.S. dollar.
See above. I think the currency risk is in holding 100% USD. If diversification is safe in holdings, why is it risky in currency?
It may be a risk you are willing to take, but currency risk is an additional exposure in foreign investments. Remember you are holding the investment in their currency and eventually will want to convert it back to U.S. dollars. I am not saying it is a gig risk, but it is a risk.
My aunt lives in Oz and I looked into this as well and found the same problem. I think Everbank will let you open a foreign currency saving account. However, the last time I checked the interest rate for the Australian account is only 2%. There are other currencies that you can choose too so check it out.
If I can’t find a good way to do it today, this could be a great business opportunity. Set something up in Australia where they take USD, exchange to AUD, put in a bank. You could take 1% off the top, pay the exchange fees, and still give clients 3.5% or more. I need to find an entrepreneurial Aussie.
I think you would get killed with fees. Off the top of my head you would have:
1. Wire transfer fee
2. Currency conversion fee
3. Your intermediary fee (that 1% you are talking about)
4. Another currency conversion fee (when you repatriate)
5. Another wire transfer fee
6. Income taxes on your foreign interest
I don’t know how much all these would cost, but it looks to me like you wouldn’t get quite as good a return, which is probably why Everbank only pays 2%.
On top of that if you were investing $10K or more you have to file with the Department of the Treasury in Michigan by June 30 every year or face steep fines. In the end it doesn’t really seem worth it to me.
But if you can find a way to make it work and get a good return I would LOVE to hear about. I enjoy learning new things everyday
I have dual citizenship between the US and Ireland. Personally I wouldn’t put anything into the Irish econonmy at this point.
I didn’t realize how fortunate I was with regards to interest rates on term deposits until I moved to Canada. Bank tellers always seemed to be amazed that my ING account here is around 2% here where it’s closer to 5% in my Australian ING account. I think it’s worth bearing in mind though that the prime rate on mortgages in Australia is a lot higher here in North America, as well as property prices. It’s all relative – wages tend to be higher but so does the cost of living. I sometimes wonder if I’ll be able to afford to move back home after being in Canada for 4 years, but if I do stay it’s a nice stable investment to have.
You’re a lucky guy to have that 5% option. Yes, mortgage rates will be higher as well, but the nice thing is you can save up a bunch of money at reasonable interest rates to make a bigger down payment.
I have French citizenship, so I have access to a few savings accounts with – currently – 2.25% return, tax-free, state-insured. Which is pretty lame, but still better than what I can get here in the US. They have a pretty low maximum though (21,300 euros), but they are the first place I’ll put money in when I decide to start transferring some dollars to France.
But that would more of a “I need to have some money back home” thing than investment. I might take advantage of the current EUR/USD exchange rate trend, though, and transfer some hard-earned dollars there in the next few months.
If I wanted to invest in Europe -which I will, but not right now, having other priorities- I still would have access to a few other products that are too complicated to explain here. I have to say I like knowing I have this kind of choices 😉
In your case, you’d probably be saddled with fees, before even accounting for the currency risk and those 5%. And don’t forget taxes…
It’s nice that you have that option, although even if I had an easy way to invest in the Euro I don’t think I would do it. Greece, Italy, Spain, etc. Too much scary stuff going on over there for me to invest in that currency.
Course you can. Our rates are even higher than Australia’s. (Conversely, it’s obviously harder to be a borrower here because debt is more expensive. But I don’t have a mortgage, so I’m happy about high rates.) Not a clue about investing from overseas though.
If you’re seriously considering this, there’s probably a better option. Try one of those boutique banks offering 4% on checking balances up to 25k. There’s required activity but its not too difficult. It’d be a lot easier than setting up shop in Aussie Land.