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Offshore Accounts
Old 02-03-2011, 01:22 PM   #1
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Offshore Accounts

Does anyone have experience with offshore savings or cd's? My Fidelity rep mentioned to me today that he has several clients with high yielding savings accounts in Australia. There are the obvious currency implications, but if your comfortable with that are there other downsides? The obvious due diligence on the counter-party would be imperative.
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Old 02-03-2011, 01:28 PM   #2
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Well you may get better rates in Aus, but will take on currency risk. The currency fluctuations may either hurt or help.

You may want to read the intro of the book "The Only Investment Guide That You'll Ever Need" by Andrew Tobias

He starts the book out with a very similar discussion of the Mexican Peso. And how everything was great until Mexico re-valued their currency.

Amazon.com: The Only Investment Guide You'll Ever Need (9780156011075): Andrew Tobias: Books

Once you go to the Amazon site, Click on the search inside this book link to read the intro and how Tobias was blindsided by the Peso.

Your post suggest that great gains may be acheived via the Australian Dollar game. However a smarter person may say that this is not the game I want to play at all (to paraphrase Tobias).
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Old 02-03-2011, 01:40 PM   #3
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Does anyone have experience with offshore savings or cd's? My Fidelity rep mentioned to me today that he has several clients with high yielding savings accounts in Australia. There are the obvious currency implications, but if your comfortable with that are there other downsides? The obvious due diligence on the counter-party would be imperative.
BayBum
FXA is yielding 3.11% -

what length of time are you looking at?
what are the CDs yielding?
what are the early withdrawal penalties?

Rydex CurrencyShares Australian ETF Chart - Yahoo! Finance
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Old 02-03-2011, 02:03 PM   #4
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Currency fluctuations will probably swamp any difference in yield plus you have the cost of converting $US to $AU and back again to consider.

I have to record the UK exchange rate on the first of every month for the savings and pension I have over there. In 2010 the exchange rate ranged +/- 12% over the average for the year, and in 2009 the range around the average was +/- 14%.

You can get historical exchange rates at XE.com Have a look at typical ranges for Australia.
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Old 02-03-2011, 02:15 PM   #5
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Does anyone have experience with offshore savings or cd's?
Can you say R. Allen Stanford?

"Stanford and other officers of his Houston-based Stanford Financial Group are accused of defrauding investors of $7 billion in a scheme based largely on certificates of deposit issued by a Stanford-owned bank on the Caribbean island of Antigua."

t.r.
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Old 02-03-2011, 02:25 PM   #6
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Does anyone have experience with offshore savings or cd's? My Fidelity rep mentioned to me today that he has several clients with high yielding savings accounts in Australia. There are the obvious currency implications, but if your comfortable with that are there other downsides? The obvious due diligence on the counter-party would be imperative.
BayBum
Also tax implications and potential reporting under FBAR and FATCA. Make sure you understand those before you do anything.
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Old 02-03-2011, 03:00 PM   #7
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If you want to play with FX, just go to EverBank and go at it...

You get the interest rate you want.. plus the currency...

PLUS, you get FDIC insurance and you do not have a foreign account to worry about...


One thing you might want to look at is the charts provided on FX rates.. I just looked at Australia and it went from .9670 to .6004 in less than one year when the crisis hit... (that would be a 38% drop in your principal)... you need a pretty good interest rate to make that up...
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Old 02-04-2011, 11:47 AM   #8
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Does anyone have experience with offshore savings or cd's? My Fidelity rep mentioned to me today that he has several clients with high yielding savings accounts in Australia. There are the obvious currency implications, but if your comfortable with that are there other downsides? The obvious due diligence on the counter-party would be imperative.
BayBum
You may find that to get those rates in Australia you either have to be an Australian citizen or a migrant resident in Australia. An American friend of ours here in the US enquired with an Australian bank last week about depositing funds with them and was told unless he was either of the above he was SOL.
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Old 02-04-2011, 12:45 PM   #9
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You may find that to get those rates in Australia you either have to be an Australian citizen or a migrant resident in Australia. An American friend of ours here in the US enquired with an Australian bank last week about depositing funds with them and was told unless he was either of the above he was SOL.
With FATCA reporting rules coming in it will be increasingly difficult to go offshore as many foreign financial institutions just won't want the bother of dealing with Americans. Also remember that if you put >$10k abroad you have to fill out TDF 90-22.1, if it's more than $50k FATCA will trigger additional forms. If you fail to submit TDF 90-22.1 here are the IRS penalties.

http://www.irstaxlawattorney.com/fba...ax-penalty.htm

and here are the FATCA penalties. There are FATCA penalties for the foreign financial institutions too so is it any wonder they don't want to deal with Americans.

Foreign Account Tax Compliance Act of 2010

so if you go offshore to find returns be aware of the reporting requirements as you don't want your gains to be wiped of by IRS fines. Also avoid any "pooled investments" like mutual funds as the IRS reporting and taxing of them is draconian.
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Old 02-04-2011, 01:08 PM   #10
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You may find that to get those rates in Australia you either have to be an Australian citizen or a migrant resident in Australia. An American friend of ours here in the US enquired with an Australian bank last week about depositing funds with them and was told unless he was either of the above he was SOL.
You may well have a point there. When we were in England last summer sorting out FIL's estate we had a fair bit of cash coming our way. The best money market / bank savings rates all required one to be a UK resident, even the Bank of Baroda (India).

As an aside, BIL suggested we put the money in a pound denominated Mutual Fund such as those Fidelity provided. (we wanted to use the money within 12 months so that was not really an option). However, I pulled up Fidelity.co.uk and found their S&P Index fund and showed him the fees. I then pulled up Fidelity.com and showed him the equivalent fund for US investors. The fees in the UK were 14 x higher than for the US, and according to a report in The Times the week before you can add on another 0.5 - 0.9% additional hidden fees.
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Old 02-04-2011, 01:20 PM   #11
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The fees in the UK were 14 x higher than for the US, and according to a report in The Times the week before you can add on another 0.5 - 0.9% additional hidden fees.
Yep mutual fund companies in the UK have outrageous fees. You have to stick with "Tracker" funds which are what index funds are called in the UK. Fidelity has a UK index "Moneybuilder" fund with a 0.3% expense ratio, but most run at 1% and that's for no active management, makes me glad of Vanguard.

Alan, you dodged a bullet, if you had bought that UK based fund the high fees would have been the least of your worries. You'd have opened yourself up to the hellish world of IRS PFIC taxation.
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Old 02-04-2011, 01:25 PM   #12
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Yep mutual fund companies in the UK have outrageous fees. You have to stick with "Tracker" funds which are what index funds are called in the UK. Fidelity has a UK index "Moneybuilder" fund with a 0.3% expense ratio, but most run at 1% and that's for no active management, makes me glad of Vanguard.

Alan, you dodged a bullet, if you had bought that UK based fund the high fees would have been the least of your worries. You'd have opened yourself up to the hellish world of IRS PFIC taxation.
Yeah, I get that question about PFIC every year when I do my taxes and am always happy to say "No". It sounds like a lot of fun I don't need.
Interest and UK pension income is easy to handle in comparison
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