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Zombie saving accounts spell disaster for expat savers
| Published: | 30 May at 6 PM |
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Tagged: Money
Expat savers are losing millions every year due to low or non-existent interest rates set against increasing inflation and tax deductions.
The plummeting of offshore savings interest rates over the past few years has pushed a huge number of expat account holders into the red and losing money after charges, tax deductions and the effect on inflation on savings pots. Their accounts are now classified as Zombies, and are closed to any new business or introductory deals.
Even so, it seems that a large number of those affected aren’t bothering to transfer their dwindling reserves elsewhere, as rates available are just as bad or ever worse. Understanding the basics of how savings accounts work might spur research resulting in a change.
Bank and building society-run savings accounts need to be fed regularly by deposits from new or regular savers to hit their profit targets. If this doesn’t happen and incoming funds become a trickle rather than a flood, interest rates are slashed or the account simply closed to new business.
Savers are supposed to be kept in the loop, but such announcements are regularly hidden at the bottom of a web page, on a small notice in a branch or on the finance page of a newspaper. None of which, of course, are much use to expat savers overseas.
Savers should ignore headline rates and do their sums wherever they live, starting with the amount of tax they pay on savings and the local inflation rate. For example, if your inflation rate is 1.8 per cent and your tax rate is 20 per cent, an interest rate of 4 per cent will produce just 2 per cent after both are deducted. Longer is better as regards fixed rate savings accounts, and higher introductory rates can be had as long as you shift again as soon as the honeymoon period is over. Loyalty is an expensive commodity as it earns you nothing.
The plummeting of offshore savings interest rates over the past few years has pushed a huge number of expat account holders into the red and losing money after charges, tax deductions and the effect on inflation on savings pots. Their accounts are now classified as Zombies, and are closed to any new business or introductory deals.
Even so, it seems that a large number of those affected aren’t bothering to transfer their dwindling reserves elsewhere, as rates available are just as bad or ever worse. Understanding the basics of how savings accounts work might spur research resulting in a change.
Bank and building society-run savings accounts need to be fed regularly by deposits from new or regular savers to hit their profit targets. If this doesn’t happen and incoming funds become a trickle rather than a flood, interest rates are slashed or the account simply closed to new business.
Savers are supposed to be kept in the loop, but such announcements are regularly hidden at the bottom of a web page, on a small notice in a branch or on the finance page of a newspaper. None of which, of course, are much use to expat savers overseas.
Savers should ignore headline rates and do their sums wherever they live, starting with the amount of tax they pay on savings and the local inflation rate. For example, if your inflation rate is 1.8 per cent and your tax rate is 20 per cent, an interest rate of 4 per cent will produce just 2 per cent after both are deducted. Longer is better as regards fixed rate savings accounts, and higher introductory rates can be had as long as you shift again as soon as the honeymoon period is over. Loyalty is an expensive commodity as it earns you nothing.
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