Saving money in euros...

November 2, 2007 11:49 AM

I keep all my savings in a Citibank e-savings account, which is like a regular savings account, only with a higher interest rate. Recently, the dollar has totally been tanking, and this trend doesn't show any signs of reversing. What's the easiest, safest, most profitable way for me to save my money in euros instead of dollars?

This is what I like about the e-savings account :

1) My money is FDIC insured.
2) The interest rate is higher than that of a typical savings account. It's somewhere around 4.25%.
3) I can take my money out any time I want without incurring any kind of penalty.
4) It's ultra-low-maintenance - I can just put my money in and forget about it.

I would like to put my money in euros without sacrificing any of the above, if possible. I know that I won't be able to find something that's FDIC insured, but I would like something that has a similar degree of security.

The fact of the matter is that the dollar is totally tanking, and I don't want to see my life's savings evaporate because of inflation or anything else that I don't really understand.

posted by Afroblanco to work & money (29 comments total)

I think you have a misconception about how money works. The Dollar isn't "tanking".

Have you noticed a substantial rise in prices? Big inflation? There hasn't been any. Inflation is very low. Your dollars are worth just about the same now as they were 6 months ago, and there's no particular reason to believe that prices will rise drastically in the next 6 months, either.

What you're talking about doing is currency speculation. And that's fine, but call it what it is, and recognize the risks associated with it that are associated with all forms of speculation.

Changes in currency exchange rates don't mean what you apparently think they do.
posted by Steven C. Den Beste at 11:56 AM on November 2, 2007

Well, he could rephrase the concern as "the direction of the US economy is scaring the crap out of me" and I think the question would be valid anyway. It's certainly a common enough thing to worry about lately, regardless of the dollar's peg position and how useful/useless that is as a bellwether.

I have a crappy ING Direct Euro account that has online everything, but it's only 3.75% interest. Maybe that's helpful?
posted by rokusan at 12:04 PM on November 2, 2007

I don't want to see my life's savings evaporate because of inflation or anything else that I don't really understand.

Right now, euros are more expensive than they had been some time ago. If you buy euros, and euros get cheaper, you will be seeing your life's savings evaporate, probably due to something that you don't really understand.
posted by yohko at 12:06 PM on November 2, 2007 [1 favorite]

Well, just because inflation isn't bad now, that doesn't mean that it won't get worse. Besides, I've heard that the inflation rate most people talk about is the 'core rate,' which doesn't include things like food and energy costs, which apparently have been on the increase for quite some time.

And SCDB - I know what currency speculation is. I have a friend who suggests that I open a currency trading account, but I don't want to do that because I don't want to micromanage my finances. I just want to make my money safer.
posted by Afroblanco at 12:13 PM on November 2, 2007

Not an economist, but I took a finance class in law school. It's my understanding that the issue here isn't something that the average consumer has to worry about, unless you are planning travels to Europe. And even then, I don't see it as a make-or-break issue. (ie You might get a couple fewer souveniers or pay a little more overall.)

A lot of big investors use currency markets to hedge risk in their portfolios it seems. If you were a big investor, this might be something to look into (and something that an investment firm would know a lot more about doing). But it sounds like you just have savings you are worried about keeping safe. I don't think that you should really worry about it.
posted by greekphilosophy at 12:16 PM on November 2, 2007

Your premise is that the dollar:euro rate will not correct itself over a medium-to-long-term period.

If this turns out to be a poor premise, right now you're trying to compound a hypothetical loss today (are your groceries really costing more right now than last year? I'll bet not) with a guaranteed real-world loss tomorrow.

Currency speculation is a crapshoot, but like anything else it's even more risky when you bet near the top of a curve. And like any risk-laden investment, it's not something you want to not pay attention to on a day-to-day basis.

Put it this way... the last fifty-odd years of evidence say that while the US is a dominant export market, exporting countries simply cannot permit a low dollar to bankrupt them. Either the market or (if it's urgent) deliberate currency devaluation kick in to correct situations like this.

So if you're in Euroland (I am), the subzero US dollar currently looks like a brilliant short-to-medium-term currency investment with maximum potential returns in the 30-50% range for the next 24 months.

When and if people start putting serious money against that bet (tip: if they do, all hell will break loose in exactly 368 days' time), you'll lose a LOT of money.

Yes, I am hinting that the entire world is wilfully reluctant to end the US's current financial misery, even at a nontrivial cost to its own financial interests, partly because it's acting as a brake on even more spectacularly dangerous foreign policy moves. No, that's not true of currency investors, but it's probably a factor in why there haven't been any artificial governmental interventions yet.
posted by genghis at 12:17 PM on November 2, 2007

I will agree with everything else being said here - which is as I read it is "this is not a super-great idea because you are making a bet with your savings you don't understand" except to also say that the Euro, is overvalued right now. Now that is not to say that returns to holding Euros over the next 0-24 months wont be positive, but it should make you think. The Economist's big mac index has a bit more about currency levels.

Anyway, your savings account is a bad way to make this bet if you do want to make it. Wait 6.98 days and ask "how do I trade foreign exchange futures."
posted by shothotbot at 12:18 PM on November 2, 2007 [1 favorite]

Your question is: How can I keep my interest-bearing money safe with low-maintenance in light of the current Euro to U.S. dollar currency differential?

The answer is: The Euro U.S. dollar currency difference is irrelevant and your money is safe where it is.

If you have a follow up question which is: Can I make a profit on the Euro to U.S. dollar currency gap?

The answer is: Maybe, but it is not a low-maintenance activity and it is risky in the long-term.
posted by dendrite at 12:24 PM on November 2, 2007 [1 favorite]

Good responses all around. However, I should mention, once again, that I'm not really interested in making any bets or taking any big risks. Quite the contrary, I'm most interested in keeping my money as safe as possible.

I apologize for my ignorance on the subject. However, if this was something I knew a lot about, I wouldn't be asking about it on AskMe, now would I?
posted by Afroblanco at 12:26 PM on November 2, 2007

Everbank let's you have a money market account in a number of different currencies, including the Euro. Whether that's wise is between you and the kibbitzers.
posted by alms at 12:26 PM on November 2, 2007

It's a shitty investment, yeah.

But let's say that I (or Afroblanco) want to open a Euro-denominated savings account anyway.

Is there an easy way to do it? Or I'm I going to have to learn how to use currency-trading tools?
posted by mr_roboto at 12:27 PM on November 2, 2007

mr_roboto: you can walk into your nearest Citibank/BoA/whatever branch and ask about their Euro-denomination savings products. They have them.
posted by genghis at 12:31 PM on November 2, 2007

I'm not really interested in making any bets or taking any big risks. Quite the contrary, I'm most interested in keeping my money as safe as possible.

In that case, you should leave it where it is. Or divide it into thirds and invest it in three mutual funds.

The value of money is measured by what you can buy with it. In other words, the way to determine if the value of the dollar is dropping is to see if prices are rising.

They aren't. Which means the value of the dollar isn't dropping, in the sense that you're talking about. If we get a real devaluation of the dollar, you'll know it.

I'm old enough to have seen that happen in the late 1970's, during a period of double-digit inflation, and it doesn't look anything remotely like what's happening now.
posted by Steven C. Den Beste at 12:36 PM on November 2, 2007

Right now your question sort of reads as: "In order to keep my money safe, I would like to use my life's savings to place a specific bet on the relative value of the dollar." I'm not sure what you mean about keeping your money "safe" - your money is safe where it is.

I agree with shothotbot that it might not be something you want to do with your entire savings account. Even if you're right that the the long-term trend of the dollar's value will be downward, it won't matter if you need to pull some of that money out during a temporary upswing, plus you might have some transaction costs associated with the conversion. This article discusses some of the scenarios.
posted by lalex at 12:53 PM on November 2, 2007 [1 favorite]

However, I should mention, once again, that I'm not really interested in making any bets or taking any big risks. Quite the contrary, I'm most interested in keeping my money as safe as possible.

Okay, then you're really not understanding what you're asking, let alone the answers here. Let's try a very simple model, just for explanatory purposes. I'll use rounded numbers not because I think you're a moron, but because my math skills suck.

Let us say that last month, it cost you $1.50 to buy €1.00. Now it costs you $2 to buy €1 because the value of the dollar is falling on the world currency market.

If you buy €1 today (which is basically what you're doing when you stick your money in a euro account), it is already not a great deal because its more expensive than it was last month. When the US economy corrects, and you want to re-enter the US$ market, you will therefore lose money.

Why? Because you will essentially have to sell your euros and buy back dollars. You paid $2 for each €1; seen the other way, you can get $2 for every €1 today. When the value of the dollar recovers, you will only get $1.50 for every euro.

So to recap what other posters are saying, the value of the dollar is only falling on the international money market. Your dollar is worth less in London than it was; it is not worth less at your local Walmart than it was*.

You live in the US, you are paid in US$, you buy goods in the US with US$, and you should continue to save money in your US savings account in dollar currency. As long as your interest rate is ahead of the US inflation rate (+/- 2.5%), your savings are fine.

*Technically, you will probably see small price increases on imported products - they cost the store more dollars now - but that isn't really what you are asking about.
posted by DarlingBri at 12:54 PM on November 2, 2007

The idea that changes in the relative value of the USD to other major world currencies doesn't make any difference to US consumers is a little bit of an oversimplification. Yes, in the short term, prices are unlikely to change significantly, but in the long term, major decreases in the value of the dollar are going to result in higher prices for imported goods. There really isn't any way around that, unless suppliers are willing to bankrupt themselves to keep prices low in US dollars.

I wouldn't move all my USD savings to EUR savings, but there is no reason that a cautious person shouldn't look to spread their currency risk out. After all, keeping all your money in USD is just as much a form of currency speculation as keeping it all in EUR.
posted by ssg at 12:56 PM on November 2, 2007 [5 favorites]

There really isn't any way around that, unless suppliers are willing to bankrupt themselves to keep prices low in US

...or, since we're talking the long term, suppliers could substitute with goods from countries with relatively weaker currencies, including (potentially) the US itself.
posted by backupjesus at 1:03 PM on November 2, 2007

Your question only makes sense if you plan on retiring outside the US.
posted by nomisxid at 1:47 PM on November 2, 2007

That kind of thing is very complicated. For instance, a large percentage of consumer manufactured goods imported into the US come from China, and China has pegged the value of the yuan to the value of the dollar. They're doing this deliberately, to make that commercial stream stable. (A lot of people think that the exchange rate they've chosen is artificially low, and they've been under pressure to raise it, but that's for another time.) So, for instance, even if the dollar somehow plummets relative to such currencies as the Yen and Euro, it won't plummet relative to the Yuan and imports from China won't change in price.

Since the international currency exchange game is so complicated, it means that wagering on it is not advised for the ill-prepared. It isn't "safe", it's very risky.
posted by Steven C. Den Beste at 1:50 PM on November 2, 2007

To answer the question, EverBank lets you open CDs or money market accounts in various currencies, including the Euro. The minimum looks to be $10,000. The APRs given for each currency are what you earn in interest and do not include anything you might earn in currency fluctuations. There's also an exchange fee to consider ("less than 1%," but you have to pay it to get out of dollars, and then pay it again if you want to get into dollars later).

Currency arbitration is, as others have mentioned, a dangerous game for the uninitiated, so I wouldn't advise playing it.
posted by kindall at 4:43 PM on November 2, 2007

Have you noticed a substantial rise in prices? Big inflation? There hasn't been any.

Good Lord, SCDB, I know you're kind of cut off from the world, but have you walked past a gas station price sign lately? Or tried to buy a decent piece of beef?
posted by ikkyu2 at 4:51 PM on November 2, 2007 [2 favorites]

A word from somebody who felt like you, a few years ago: I opened a euro account at Everbank, at that time. After becoming discouraged with the account's lack of interest, I transferred all of it (about 8364;10K) into one of their euro-CDs, where the capital's preserved its value, and is generating almost-acceptable interest. (Curse you, Fed, for lowering the interest rate!)

Something to keep in mind. You'd think, it's in euros, and Everbank's all about eBanking -- I'll be able to withdraw directly from an ATM in Europe? Sorry -- not yet, maybe never. So you'll be paying exchange comissions both during deposit ($->8364;) and withdrawal(8364;->$).
posted by Rash at 5:18 PM on November 2, 2007

Thank you, MetaFilter test entry box, for converting my HTML € codes to gibberish.
posted by Rash at 5:20 PM on November 2, 2007

The most plausible argument for the US dollar continuing to tank would be a structural increase in inflation.

So if that is really what you are trying to protect your investment from, then the government offers inflation protected securities that offer interest equal to the current real yield on treasuries plus a payment that is linked to the CPI. Basically a very low risk way to protect your savings against inflation. If inflation doesn't spike you still will do about the same as what you would earn in your savings account. If it does spike you are protected.
posted by JPD at 5:41 PM on November 2, 2007 [1 favorite]

Ireland is a good place to open a non-resident € account that will let you move cash around easily within the EU without currency conversion charges. It's in the Eurozone (unlike the UK) and everyone speaks English. The banks are well-used to dealing with non-resident accounts, and as a non-resident you don't escape some of the taxes the Government levies against simple deposit accounts (as a way of encouraging investment in equities, etc). Most banks offer a range of savings vehicles similar to doller-cost averaging, buying baskets of equities of bonds (gilts). Some of the big banks in Ireland are Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Ulster Banbk, Permanent TSB, National Irish, First National, EBS, and a bunch of others. Because Ireland also functions as a huge money laundering scheme for corporate profits, basically a huge number of banks maintain at least a single branch in Ireland, but most of these are corporate-only.
posted by meehawl at 6:48 PM on November 2, 2007 [1 favorite]

Pardon me, but Ireland is not a haven for money laundering. It is, however, a corporate tax haven. Ireland's corporate tax rate is 10% - half that of the US. I'm sure Google's offices in Dublin employ four people or something, but it is still perfectly legal. Which money laundering is not.

Here is some information from BoI on non-resident accounts.
posted by DarlingBri at 6:58 PM on November 2, 2007

Thanks all for your help. I have received many good responses, which I appreciate.

In some of the lesser responses, I noticed a hint of condescension that I didn't really appreciate. If I didn't know any better, I would think that I had upset some peoples' political sensibilities. Fortunately, I think that the good in this thread certainly outweighed the bad.

As a side note, one of my friends suggested that instead of buying euros, I invest dollars in non-volatile US corporations who do a lot of overseas business. This would allow me to take advantage of strong foreign markets without incurring the risks (and fees!) associated with currency trading. I may want to do this.

To be honest, I haven't really decided what to do with my money. I probably won't be trading my e-savings account for a euro-denominated savings account any time soon, but, then again, that was really only one of the many options that I've been thinking about.

See? I'm not that stupid after all.
posted by Afroblanco at 9:40 PM on November 2, 2007

SCDB: China has pegged the value of the yuan to the value of the dollar.

They used to do this, until things started to look a bit pear-shaped in the US economy. It has been pegged semi-loosely to a basket of currencies for more than two years. The dollar is down about 10% against the yuan since then.
posted by ssg at 10:16 PM on November 2, 2007

It is, however, a corporate tax haven.

Sorry, profit laundering - Fixed that for you (sure isn't the no tax on patent licensing a great thing anyway, God knows Google or Microsoft wouldn't have two pennies to rub together without it).

For less salubrious activities, Ireland's gotten better than it used to be, but enforcement is still relatively lax. When two of the four big banks have been sent down, repeatedly, for playing loose with the foreign account status for high net worthers, that says volumes about the compliance attitudes in Irish banking.

During the late 90s, Ireland had the third-highest quantity of offshore Russian shell registration companies. Not damning evidence in and of itself, but very interesting. I personally lived next door to a solicitor's office that did a brisk busines servicing pretty much exclusively eastern European interests.

Also, Marc Rich did much of his laundering through Ireland throughout the 1980s and 1990s, and Glencore was exchanging assets at a firce clip There's lots of amusing US testimony about Rich meeting with familiar names in unfamiliar places (ie, Belfast and Dublin). Fish out of water, so to speak.

My point remains though - for native English speakers from north america, Ireland's a great place for a Euro account.
posted by meehawl at 11:57 PM on November 2, 2007