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1. Open offshore bank accounts
2. Keep your accounts open longer
3. Choose the best banks and countries
No savvy investor wants to park their funds in a bank that offers lackluster interest. But for many of us, the banks in our home countries don’t leave us much of a choice, which begs the question of how can we get higher interest rates?
Right now, the top certificate of deposit in the United States pays out anywhere from 2% to 2.7%. And yes, that has improved from last year when rates were below the 2% threshold.
But with such nominal returns, you might be wondering if leaving your money there is worth it at all. Let us save you the trouble, it’s not.
Let’s look at the US as an example: In 2018, the inflation rate in the US was 2.44% on average. Put simply, that means you need to spend an extra 2.44% to maintain the same quality of living as the year before.
During the same period, let’s say that your local bank is paying you a 2% interest rate on a fixed deposit. Which means, you’ll receive 2%, compounded annually, for the total amount deposited.
Lets recap, in 2018, your cost of living increased at a rate of 2.44%. But the value of your savings only increased at a rate of 2%. Therein lies the problem, your money isn’t keeping up with your cost of living.
Sticking with the US example, depending on your city, you may have had much higher inflation. Meaning your money would be losing value at an even faster rate.
So to fully answer the question above:
“Why does getting a higher interest rate matter?”
It matters because without an interest rate that (at least) matches inflation, your money decreases in value.
But the fact remains, that they don’t have to. In contrast to what you can receive at local banks in most developed nations, international banks tend to offer much higher rates. But, you might be wondering, “what do you have to give up to get higher interest rates”?
Well, it obviously depends on the bank that you decide to open an account with. But in general, when you compare your local bank to an international bank, you typically get better service. And you will probably get better financial management. Oh, and on top of all that you get higher interest rates too.
That’s right, you don’t have to give up anything to get a higher return on your deposits. In fact, you actually get better service and greater protection for your money all around.
So the real question isn’t how do you get higher interest rates. It’s why don’t you already have an international bank account?
Let’s pretend for a second that you’ve decided to look beyond your home country to open up a bank account. Maybe you were just informed that you can find better banks and get higher interest rates internationally. What’s the next step that you should take?
The next step is determining the best country for you to bank in. And then you can start deciding which banks to open accounts with. Only then do you need to worry about going through the process.
And lets not forget, depending on the size of your deposit, the outcome can be substantial – especially when compared to the rates you’re getting at home.
There are international banks around the world that offer attractive one-year interest rates north of 5 percent. And just to be clear, you don’t need to be banking in their local currencies.
Most of the jurisdictions we’re about to mention want you to bank in US dollars or Euros. Of course, if you’re interested in local the currency, you can generate significantly higher returns. But you’re getting those higher returns in exchange for the added currency risk that you’re taking on.
And currency risk is only one of the risks that you will encounter when opening in high interest earning jurisdictions. But, that’s not to say that there are no risks banking in your home country as well.
In fact, banking in your home country often results in banking with lower quality banks. These local banks tend to engage in toxic investments and have horrible lending practices. They often lend your money, and your fellow depositors’ money, to people that shouldn’t be getting mortgages or loans to begin with.
To learn about the benefits of international banking, you should read our recent article here. But for the purposes of this article, we’re going to dive a bit further into the risks of international banking.
Generally speaking, when we talk about banking internationally, we look at two specific risks:
Risk #1: Jurisdiction risks
Risk #2: Bank risks
Jurisdiction risks refer to the specific jurisdiction where the bank is based. It’s important to understand whether a jurisdiction’s financial sector and currency are stable. Likewise, you need to feel confident that there is relative political and regulatory stability. This, of course, tends to go hand in hand with a solid economic foundation. All of these considerations impact your banking experience, how you access your account, and your money in a given country.
With that in mind, you ideally want to be banking in a stable jurisdiction that isn’t rife with corruption and conflict. And if you can find a jurisdiction where the value of the total deposits in the country doesn’t dwarf its GDP, consider that a bonus.
As you might imagine, bank risks refer to the way that the bank you opened an account at is managed. Unfortunately, too few people bother to ask the most basic questions. You wouldn’t make an investment without asking a few questions about the financial health of the company or the management of the business. So why would you give your money willingly to someone else without asking the same basic questions?
Here are the most basic questions that you should be asking when considering to open an account:
While we’re discussing the risks of international banking, the same risks apply when banking locally. Are you in fact banking at a safe bank? Does your home country meet the same standards you’re applying to international jurisdictions? that you’re considering? If you’re new to international banking, you might be surprised by the answer.
Each year there seems to be a new country that joins the ranks of the highest interest rate jurisdictions. In years past, Mongolia, Zambia, Turkey, and Georgia have all topped the charts.
Generally speaking, does receiving a higher interest rate mean that you should open an account? Of course not, but it certainly means that the GlobalBanks team will be taking a closer look.
Even put aside the highest interest jurisdictions, there are still many countries offering twice as much as major banks in the US. In these instances, you will find safer banks and still receive much higher returns than you can find at home.
In addition to having one of the easiest account opening processes anywhere, Georgia also offers very high interest rates. That said, Georgia probably isn’t a surprising inclusion on this list. In fact, unless you’ve been hiding under a rock, you’ve probably heard everyone in the internationalization space talking about it.
While most people are still very excited about Georgia, the GlobalBanks team still sees risks banking here. So our excitement is more tempered than most. We cover all of these risks and account opening strategies in our Banking in Georgia report, which is available in the Insider Library.
Bottomline: You can open accounts in Georgia very easily without needing to travel there or pay high fees. And, as we detail in our Georgia report, you probably have a good chance of opening remotely, without the help of an introducer.
Now, when it comes to interest rates in Georgia, many people still expect double-digit payouts. That’s no longer possible. Even if you choose to open in the Georgian Lari, the local currency, you’re only going to be topping 9.4%. Yes, we said “only”.
If you choose instead to open in USD, which we strongly recommend, you can expect between 3% and 3.5%. The interest rate you lock in will depend on the size of your deposit and the bank that you deal with.
Panama is often referenced as a hub for international banking, and rightfully so. In addition to being one of Latin America’s most developed cities, it is also home to banks from around the world.
One of the striking differences between Panama and many other banking jurisdictions is that it offers access to US dollars. Now, Panama does have its own currency, the Balboa, but it only exists in coinage. So any banking that you do in Panama will be denominated in USD.
This alone offers a lot of value from a risk perspective if your money originates in USD. By not dealing with a small local currency you eliminate one of the major risks that can hinder international banking, currency risk.
That said, Panama’s relative stability does result in lower interest rates than elsewhere. However, when compared to Georgia, that’s actually not the case.
At most Panamanian banks, you can find USD deposits paying out between 3.5% and 4.5%. Again, this will depend on the bank that you are dealing with and the amount that you are willing to deposit. Another consideration that you can use when negotiating is the length of time that you will leave your money deposited.
That said, there are some challenges with banking in Panama. One, in particular, is opening an account if you are a non-resident. This is definitely still possible, so long as you know which banks to approach and what account opening strategies to use.
We discuss account opening strategies for Panamanian Banks in our Banking in Panama report. There, Insiders can access information on the best banking options in the country. Not to mention specific contacts and insights into each banks’ operations.
As mentioned above, Mongolia is a favorite when it comes to high-interest rates. Internationalization gurus have often touted the benefits of opening an account here, and it’s not without reason.
Mongolia was, up until a few years ago the fastest growing economy in the world, driven by a local mining boom. And as a result of that growth, many of the banks, offered very attractive interest rates to draw in more foreign capital to the market.
Well, the mining boom has slowed down, and so has the economy. And as a result, we have seen many of the interest rates drop. That said, even these “dropped” rates are still much better than you will get at home. For this reason, the GlobalBanks team still likes Mongolia as an option for fixed deposits. So if you’re in the neighborhood it could be worth checking out.
Out of the many banks that are in the country, there are only a handful that you should consider opening an account with. The first and the only one that we have found to offer proper English language service is Khan Bank.
If you choose to visit Khan, you should visit their “Embassy” branch, located a few blocks from Parliament in the center of Ulaanbaatar. There you will find great English speaking staff to go along with your 5.4% USD interest rate on a 12-month deposit.
As with most international jurisdictions, if you want to take your chances on the local currency, you’ll find that you can earn up to 13%. That said, the tugrik is a volatile currency, and the exposure just isn’t worth the risk.
Another former Soviet Republic, Armenia, is a bit of a hidden gem. And unlike many other former Soviet Republics, Armenia has a strong banking culture.
In Yerevan, Armenia’s capital, you will find a range of Armenian retail banks, private banks, and investment banks. And most of them will be ready to accept your deposits in USD, EUR, or RUB in exchange for a healthy interest rate.
And when it comes to rates, Armenia, like the other countries mentioned, is very attractive when compared to most jurisdictions. The base account that you can open in Armenia starts at US $500, and if you choose to open in Armenian drams you can lock in 9.5%.
However, if you instead choose to open in USD, you can expect to get anywhere from 4% to 4.5%. If you want to deposit in EUR or RUB, you will receive 2.5% or 7% respectively.
To get started on your account opening journey, you need to choose a country and find the best bank for you. To do that, you should assess all of the potential pros and cons of both the jurisdiction and the bank.
Additionally, it’s worth noting that while you might want to open an account, these banks might not want you as a client. You see, each bank will have its own acceptance criteria, and depending on how you approach them you might not make the cut.
But don’t fret, that doesn’t mean you can’t open accounts at your bank of choice. It simply means that you need to have the right account opening strategy when you approach the bank from the outset.
GlobalBanks Insiders do this by using the banking intelligence available in our private, members-only platform.
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