Is investing in foreign banks a good way to beat low interest rates?

The low interest rates prevalent in western Europe and the US have got me wondering whether keeping money in savings accounts or CDs in countries with high interest rates isn’t a better investment. Does anyone have experience holding assets in foreign accounts. Which countries allow non-residents to open savings accounts or to invest in term deposits and which of those would you recommend?

In many countries, banks only provide services to residents. However, there are countries which do accept non-resident customers. Some banks even offer special non-resident accounts which allow you to deposit and withdraw money (plus interest) without regular import and export restrictions.

As a general rule, the higher the inflation rate of a country’s currency, the more interest you earn. There are exceptions to this rule. You can compare rates in a number of countries in this comparison of savings accounts in different countries.

Diversifying your savings across more than one currency lets you protect yourself from the event of one currency losing a lot of value. However, it is important to account for currency appreciation or devaluation when calculating the interest you can earn. While there is no sure way to predict how currency exchange rates will develop, historically, the Swiss franc has gained value over most currencies.

For example, if a euro account had an interest rate of 2 percent per annum, but the euro lost 1.5 percent of its value against the franc, on average, each year over your savings term, then your real return would be the same as if you kept your money in a Swiss franc account with 0.5 percent interest per year.

Make sure to account for the currency exchange risk when calculating whether or not a foreign currency account is a good investment.

More on this topic:
Blog: Does holding foreign currencies make sense?