FX gives me a headache

February 15, 2008 6:46 AM

I am permanently moving from the US to Europe in about a month. I have about $50K in savings in HSBC high (and ever-falling) interest account. I am at a loss as to what to do with this money. Money-savvy Mefites, please come to the rescue.

So I have all this money sitting in savings. For the next four months my salary will continue to be paid in dollars. I am a horrible, albeit charming, investment ignoramus. On one hand, I feel terrible about converting my savings to euros, on the other I don't know whether I want to leave my money in the States especially if the dollar is to further depreciate against the euro. I considered buying an apartment in Washington, DC and renting it out; but I wonder if there are other means of managing my hard-earned money and assuring that it will not loose its value. Ideas? Comments? Anyone? Bueller?

posted by barrakuda to work & money (18 comments total)

On one hand, I feel terrible about converting my savings to euros

Why is that?

but I wonder if there are other means of managing my hard-earned money and assuring that it will not loose its value.

The time-honored way to do that is to buy gold. I think gold is probably a little over-valued right now. But putting the money in a Euro denominated account is not a bad way for it to hold it's value as long as you get a good interest rate. You could also buy federal bonds.

I considered buying an apartment in Washington, DC and renting it out

That's a really bad idea, not only is the housing market pretty unstable right now, but you'll have to hire a property management company to do all the maintenance on the unit, since you won't be around to do it yourself. You won't make any money when the apartment is un-rented, etc.
posted by delmoi at 6:57 AM on February 15, 2008

Do you have any plans for this money? If it's an emergency rainy-day fund, keep it liquid. Assuming your account pays a reasonable interest rate, it'll keep pace with inflation.

If it's long-term savings, put it into an index fund (assuming you've maxed out all of your retirement options such as 401k and IRA).

Real estate is probably not a great plan as delmoi says. It may have a ways to fall still and it takes time, energy and money to manage a property, particularly one that's not near you.
posted by justkevin at 7:06 AM on February 15, 2008

I'm not sure converting your savings into a foreign currency is a strong investment strategy. If it were, you'd see investors in the US converting their cash to Euros. There are no magic bullets in investment -- they moment they exist is the moment they cease to exist.

If you don't have time to do your legwork in deciding how to invest (ie: time for hours of research), don't make any quick decisions based on what people think you should do. You'll hear the whole range from real estate, stocks, bonds, gold, investing in startups, you name it.

I'd toss it into your local US bank in a 6-month COD and let it slowly keep try to keep ahead of inflation.
posted by bprater at 7:11 AM on February 15, 2008

I feel bad about converting it to euros b/c while I have been earning it, the money has lost a significant percentage of its value against the euro. I will be moving to Europe permanently so I will be spending in euros and living my life in euros. Not sure if I would call these savings as an emergency rainy-day fund - it's simply all my savings (have nothing else, but also I have no debts). I am not an American and therefore have no 401K or IRA. My conundrum is whether I leave it in a US bank although my life will be in Europe? and if I do... then what? waiting for the dollar to bounce back? Will it ever? What are my other options?
posted by barrakuda at 7:14 AM on February 15, 2008

Well, yeah, it will bounce back at some point because that is the cyclical nature of economies. You can't predict where it will bounce back to, however, nor can you predict the relative value of the changing euro, either, so I'm not really sure that's the key long-term issue. If you are moving to Europe (where, exactly, would be helpful information to have) you are likely to be better off taking the money with you and investing it here.

You mention you don't have a 401K plan, and obviously you need retirement savings. Since you're going to be paying taxes in Europe, your retirement savings can result in significant tax breaks on your new country's taxes. You will definitely want to front-load a retirement account with the max allowed annually for wherever you are.

Home ownership is also much more widespread in some European countries, and if you are settling permanently, you may be interested in purchasing a house or flat here. Cash will help.

Credit cards in some countries are not as easy to come by as they are in the US, so having significant money in an account can help with that, too.

This is where you are about to live for the rest of your life, so this is where your savings and investments need to keep pace against inflation. In my experience, most people making this move hold on to US accounts for a while because transition is just scary, but eventually move the lot.

That said, I'd keep a grand in the US account, just to keep it open. US bank accounts are very handy, especially for things like PayPal, etc.
posted by DarlingBri at 7:38 AM on February 15, 2008

I feel bad about converting it to euros b/c while I have been earning it, the money has lost a significant percentage of its value against the euro.

It sounds like you are realizing that you made an investment that resulted in a loss, and you're now worried about somehow making this loss "permanent" by converting it to euros. This happens to a lot of people, and it's the reason why a lot of individual investors hang onto their worst performing stocks, hoping that somehow something will happen that will turn their investment mistake into a smart decision. The reality is that you've already lost the value that was drained from the dollar recently, so you should just move on and pick the best investments you can make now without worrying about how much money you could have had if you had seen the dollar troubles coming.

The best investment decisions for you are probably dependent on how you are taxed in whatever country you are moving to, so I can't really give you specific advice on that. What I can tell you is that if you have no debts and you have enough cash to get through any unforseen problem (an emergency fund), then there are probably better investment options for you than having it all as cash in a high-interest savings account. Although you said you don't have any kind of retirement account, it might be helpful for you to set something up similar to that where you can take a certain amount of your monthly pay and put it in an index fund. Again, the specifics will probably vary based on where you are going to be living, so try to get some unbiased advice from a financial expert in your neck of the woods.
posted by burnmp3s at 7:50 AM on February 15, 2008

I will be moving to Germany. My salary is from an international UN-umbrella organization and it is not taxed in the States (and by bilateral agreements, not taxed in Europe). So, no taxes for me. On the other hand I am an international consultant (not staff) in my organization, therefore I do not get a retirement plan.

burnmp3s - your fist paragraph is exactly how I feel. I understand that this may be a permanent loss, but looking for ideas on how to move from there and make smarter decisions - especially considering this move.
posted by barrakuda at 8:01 AM on February 15, 2008

If you don't need to touch it -- i.e. if your relocation is being paid for -- don't touch it for the moment.

There's something to be said for drawing a line under your dollar earnings, converting and starting afresh based upon your new circumstances, using the tax-friendly options available to you. But wait until you're settled in, then start considering what you need in terms of rainy-day money, mid-term and long-term investments, based on the options available. Your job may not come with a retirement plan, but there are likely to be HR people who'll be able to recommend financial advisors who understand the particulars of your work situation.

In short, wait until you start thinking (and being paid) in euros.

(Though as DarlingBri said, there's something to be said for keeping that USD account open with a a grand or so.)
posted by holgate at 8:37 AM on February 15, 2008

"My salary is from an international UN-umbrella organization and it is not taxed in the States (and by bilateral agreements, not taxed in Europe). So, no taxes for me."

I might be missing something, but if you're an American citizen then you're liable to pay US taxes on any earnings in excess of $95K or so. If you're under that threshold at best you'd avoid US taxes - do you have in writing the German's won't tax you as well?

Even if you avoid US taxes due to earnings below the stated threshold, the Germans are sure to tax your salary locally.

And I suspect what burnmp3s was referring to was taxes on the act of remitting your savings to Germany, and paying local taxes on interest earned.

I'm an American living in England, and the British government definitely would levy a tax. Are you sure Germany doesn't? Even if your salary were somehow ineglible for local taxation (possible), I'd find it hard to believe some folks can whizz large sums of cash around the globe without getting taxed. Governments are greedy.

No sense getting whacked (UK tax levy on funds brought into the country is 40%, Germany won't be much different in nominal terms) with a large bill and later find out that simply by transferring funds out of the US you've somehow managed to turn $50K into $30K.

And the same point on locally earned interest; again, I've got cash in the bank here in London and its taxed locally. I get tax credits on the US side, but in the UK I have to pay.
posted by Mutant at 8:50 AM on February 15, 2008 [1 favorite]

The foreign exchange market is very efficient. If large investors with enormous resources were certain that the euro was going to go up to a certain level, then they would keep buying euros and selling dollars until it reached that level. The fact that we are at 1.46 USD/EUR right now means that there are not an excess of big investors who think there are profits to be taken in this way.

The only thing you can control is your transaction costs. That means not transferring the money to Euros if you think you will ever want to transfer any of it back to dollars. Other than that, you can send the money to whatever you think is the best investment opportunity.
posted by grouse at 8:54 AM on February 15, 2008

Leave it there, at least for the time being. HSBC will very likely have branches near your new home (they are a huge global enterprise). Once you're there, you should be able to easily access it when you need to.
posted by Doohickie at 8:57 AM on February 15, 2008

This kind of depends on where in Europe you're going, and how much of your move is paid for. (Like, do you have a company flat to crash at? Will they help you buy furniture?)

I recently made the move from Canada to London with about $20k in savings, and boy, Europe is expensive. It's really easy to burn through several thousand dollars just getting set up.

My suggestion would be to keep as much of that as liquid as possible so that you have easy access settlement money to get you set up in your new European life.
posted by generichuman at 8:58 AM on February 15, 2008

Mutant - I am not American and as a worker of international organization I am exempt from income taxes in the US and in my country of origin. All expat staff/consultants working for the UN and any of its agencies are exempt from income taxes.

I guess by now my question has been derailed to - how to move my money from the States to Europe without being taxed on it :)
posted by barrakuda at 9:01 AM on February 15, 2008

UK tax levy on funds brought into the country is 40%

This is the first I have heard of this policy. I do not understand why a government would want to discourage the influx of funds in this way. Do you have any more details on this?
posted by grouse at 9:26 AM on February 15, 2008

The fact that we are at 1.46 USD/EUR right now means that there are not an excess of big investors who think there are profits to be taken in this way.

And the fact that we were at 1.3 USD/EUR last year, and 1.2 USD/EUR the year before means that this logic is fundamentally flawed, because you could have said the same thing last year and you would have been just as wrong.

If you think the dollar will get better, keep it in dollars. If you think that the U.S. is only going to slip further into recession in the next couple of years, by all means move the cash to a more stable denomination.
posted by Civil_Disobedient at 10:34 AM on February 15, 2008

"UK tax levy on funds brought into the country is 40%

This is the first I have heard of this policy. I do not understand why a government would want to discourage the influx of funds in this way. Do you have any more details on this?"

I'm not so sure they are trying to discourage the influx of capital, rather insuring that if someone resident in the UK invests in a domicile with relatively low tax rates, these gains are taxed at prevailing rates when funds are repatriated back into England.

The UK will levy taxes on funds that are remitted into the United Kingdom, if UK taxes have not already been paid on the capital. I'm not sure in general, but for non-doms such as myself this is definitely the case. From a read it seems this policy applies most strictly to profits from non UK investments, but if HMRC classifies interest on interest (as a bank account would generate) as profit then they'll almost certainly levy a tax.

I only became aware of this issue as last year when capitalising a business I was starting up, and later got assesed for taxes on the funds. The precise calculation was complex, part taxed at 40%, and the remainder at the difference between applicable US and UK tax rates. I am by no means knowledgeable in these matters, just a victim myself and have to leave these details to my accountant.

Not to derail OP's question - what's been suggested to (*cough*) a friend (*cough*) since is to not be so honest and use a debit card bring in relatively small amounts.
posted by Mutant at 12:25 PM on February 15, 2008

If the big investors knew with certainty a year ago that we would be at 1.46 USD/EUR today, then they would have kept selling dollars and buying euros until it reached that rate, because they would be able to make a big profit a year later. The fact that it didn't indicates that they thought there was sufficient risk of it going the other way.
posted by grouse at 1:15 PM on February 15, 2008

this logic is fundamentally flawed

No, it's not. The best indicator of what an exchange rate will be at any future point is what it is right now.
posted by oaf at 7:33 PM on February 17, 2008