Euros

[shiny]

DH and I are thinking of opening a bank account with a bank on the Isle of Man
with Euros. Its called an Accumulation Account that holds your money and doesn't pay interest until you close the account therefore not creating any taxable income until you decide to take it.

We know people who have an account here and have done some research on the bank, so I'm not worried about it, but I'm just wondering what the views are on this board about the state of the dollar v. the euro. I certainly wish I had done this before the trade was so bad for the dollar, but I'm worried that with all of our debt here in the US it will get worse.

Any thoughts?

 

[brewer12345]

You are a US taxpayer? If so, I would investigate alternatives. You can buy an ETF that holds only Euros, open a Euro-denominated bank account at Everbank, or buy a non-USD bond fund. None of these will expose you to IRS scrutiny or the credit risk of an iffy offshore bank.

 

[shiny]

You are a US taxpayer? If so, I would investigate alternatives. You can buy an ETF that holds only Euros, open a Euro-denominated bank account at Everbank, or buy a non-USD bond fund. None of these will expose you to IRS scrutiny or the credit risk of an iffy offshore bank.

Yes, I'm in the US. I've reseached several alternatives and this seemed the best of the lot. FXE (on Forex) pays out taxable income and the interest rate at Everbank is pretty non-existant. (I hold Chinese Yuan there because its easy) anyway...

What about the timing of the trade - any reason to foresee the dollar strenthening later this year?

 

[Alan]

Its called an Accumulation Account that holds your money and doesn't pay interest until you close the account therefore not creating any taxable income until you decide to take it.

If you are doing it to avoid paying taxes, then don't. Changes in exchange rates will more than wipe out any tax advantages and then some.

We sold our house in England in 1992 and put the 75K equity into a Jersey bank account as the exchange rate dollars to pounds was only 1.49. he interest rate was 13% at the time as well. I tracked the value of it on a spreadsheet and watched with horror as the pound sank to 1.44. Fortunately it was the seed money of our retirement portfolio so we had loads of time and transferred it a few years when the rate was up to 1.69.

You need a strong stomach to play with currency exchange rates

 

[shiny]

If you are doing it to avoid paying taxes, then don't. Changes in exchange rates will more than wipe out any tax advantages and then some.
You need a strong stomach to play with currency exchange rates

Well, we would be doing it order to participate in the currency exchange rates. A side benefit would be not having any taxable events until we cash out. We wouldn't plan on touching this money for many years - and wouldn't NEED it at any particular time (so it could ride out gyrations)

 

[haha]

A side benefit would be not having any taxable events until we cash out. We wouldn't plan on touching this money for many years - and wouldn't NEED it at any particular time (so it could ride out gyrations)

This is tricky. US govt frowns on devices meant to postpone recognition of interest income. It could involve you in endless complications.

Ha

 

[brewer12345]

This is tricky. US govt frowns on devices meant to postpone recognition of interest income. It could involve you in endless complications.

Ha

That was my worry. Given the rather modest taxable income that would be generated by a cash or bond investment, I don't understand why you would incur the risk.

 

[Alan]

I've looked a the website and the link for interest rates doesn't work. I also couldn't see as much detail on the accumulation accounts as I would like. Won't you have to sign up for a fixed period at the end of which you get the accumulated interest paid? I don't see how they can offer unlimited time period of tax deferred interest growth for US tax paters. There is a warning on their website that says you should consult a tax advisor before investing.

 

[lazygood4nothinbum]

euros? shiny, wrong continent. think yen

 

[boutros]

I would think that this should be taxed as phantom income like a zero.

 

[shiny]

US govt frowns on devices meant to postpone recognition of interest income.

Unless they are doing it themselves - like with I-bonds??!!

I've looked a the website and the link for interest rates doesn't work.

Yes, you have to call or email to get the current interest rates.

euros? shiny, wrong continent. think yen

I know! I'll have to look into that when I get there!




Ok... I realized that I should have just asked what folks here think of the dollar-euro trade. Any thoughts not related to my tax situation

 

[Lsbcal]

Here is a link to the dollar exchange rate 1972 - 1998: http://research.stlouisfed.org/fred2/series/TWEXMTHY/105

and this is for 1994 - present:
http://research.stlouisfed.org/fred2/series/DTWEXB/105/Max

Are you sure you could take a spike like what occurred in the early 1980's ? That one took something like 8 years to go up then down. At least be aware of history. The spike could, of course, go the other way.

I would at least take a more balanced position against the dollar like a general purpose international stock fund. That way you are betting of Europe, Asia and Emerging countries as well as taking a dollar hedge.

Les

 

[haha]

Ok... I realized that I should have just asked what folks here think of the dollar-euro trade. Any thoughts not related to my tax situation

I suppose one way to look at it is that as a US person you have most of your net worth, salary, etc tied to the US$. Without necessarily forecasting rate movement it seems that it could make sense as pure diversification to hold some wealth in other major currencies like the Euro and the yen.

As far as rate forecasting, it is not very clear to me. The US$ seems to have very big problems, still various gauges do not show it to be currently overvalued on a purchasing power parity basis relative to the Euro.

OTOH, the yen does seem to be quite cheap, and there might also be attractive possibilities when/if you go there.

Ha

 

[lazyday]

The US$ seems to have very big problems, still various gauges do not show it to be currently overvalued on a purchasing power parity basis relative to the Euro.

OTOH, the yen does seem to be quite cheap, and there might also be attractive possibilities when/if you go there.

Maybe I'm reading this chart wrong, but looks to me like on a simplistic PPP basis, U.S.$ is about as overvalued to the Euro as it is to the Yen, at least as of January: http://www.oecd.org/dataoecd/48/18/18598721.pdf

I don't have lots of good sources of PPP data... if you (Ha) or anyone has favorite sites or such, please post.