Putting Money in SA Banks ?

[JimmySTLOUIS]

When I was in Peru the interest rates looked really attractive.
I was thinking that if I moved there I could earn enough to get by on just in interest. I might also buy a business or something.

You do have to convert your money to Soles to get that interest.
What are the downsides to this? I know its not FDIC insured or anything but .... 1 percent here sure isnt much fun.

I think one fear would be that the soles value to the dollar would change and you could wind up losing money that way. I guess the bank could fail also.
The one bank that my girlfriends family was workign with seems really legit.

Thanks in advance for any help with this. I keep thinking about this and need some advice.

TE AMO PERU!!!!!

jim

[Georgina]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

[This message has been edited by Georgina]

In Peru you can have a savings account in dollars. Didn't know about having to convert them to soles to get the interest.

[kented]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

In Costa Rica and all of Latin America their currency loses value to the dollar every day due to their higher inflation rates than the US.  

Costa Rica solves this by devaluing their currency by about .005% daily versus the dollar.  If you were to withdraw, say 10.000 colones (about $25) on two consecutive days the second day would cost you about a cent less.  I had a choice of a bank account in dollars paying 3% and one in colones paying 20%, the difference being the predicted currency devaluation.

Costa Rica achieves stability by this constant downward adjustment of their currency but I am sure this devaluation is less public in other places.  It's far too speculatrive to have important money in a Latin currency.  Amo Costa Rica tambíen but I will keep my accounts in dollars.

[burbuja2]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

Any would be depositor into a foreign bank runs both a credit risk and a currency risk.  Rather than view a deposit as an investment, I think its ok to deposit a smaller amount into a savings account with a cashiers check drawn on a US bank.  Those funds can then be withdrawn on subsequent visits if you run short of dinero so you don't have to get an advance on your credit card.
Now, several of us have been following your odyssey from the begining.  What exactly happened to make you question the age difference?

[DallasSteve2]

... in response to Let Me Say This About That, posted by burbuja2 on May 17, 2004

Jimmy

Do you not want to answer?

Steve

[JimmySTLOUIS]

... in response to This could be an interesting thread, posted by DallasSteve2 on May 18, 2004

I thought I talked about it in my last posts ?

Its more of an ambition thing than an age thing. Though it could be both.
She is now going to school during the day and the university at night so that should put her feet to the fire a little.

Te Amo Peru!

jim

[Cali James]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

The higher interest ONLY reflects higher inflation so your real rate of return is not what you might imagine.  Second, even if you did get a higher rate of REAL return, which I doubt, you have a much much riskier investment.  I wouldn't recommend investing in Latin America.  Your money is much safer here in the States.

[Pete E]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

Years ago there was a billboard along the highway to Ensinada.It offered like 25% interest at a bank.The mexican peso wa about 20 to the dollar.Four years later it was 2600.So your pesos multiplied by 4 while being devalued 130 times.You lose 33 ,to one,97%.
Currency values can be crazy in latin countries.Better know what your doing.

Pete

[Miguel]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

[This message has been edited by Miguel]

Don't know the situation in Peru, but it's probably not as good as it looks on the surface.  What follows is applicable to emerging markets in general, not specifically Peru.

You should compare the nominal interest rate to the inflation rate.  Subtract the two to get the "real" rate.  Then realize that if the real rate is high (say over 3% or 4%), it's probably because the central bank is trying to bring down the rate of inflation with high interest rates.  If they're successful, and you've invested in a savings account or short term deposits, then you're not going to be getting that attractive rate in the future, because it's going to come down as inflation comes down.

The way around this, you can invest in longer term instruments, say government bonds with maturities of 5, 10, or 15 years.  These are riskier than shorter-term instruments though.  If inflation goes through the ceiling, as it has in the past in certain Latin American countries, you could end up with a worthless piece of paper if you hold onto it.  IMHO, right now, emerging market bonds in general aren't good investments.  With very low interest rates in the U.S. and many other countries, people have been bidding up emerging market bonds, and the interest rate spreads between risky foreign bonds and U.S. treasuries until recently was close to an all time low.  This has started to turn around in the last few weeks, but still may have a long way to go.

You have to be aware of currency "risk".  I use the quotation marks because this can go either way. I think on average latin currencies are undervalued vs. the U.S. dollar.  Currencies in Argentina and Brazil in particular took big hits in recent years and have yet to recover.  Don't know situation in Peru.

Be aware of tax considerations.  Say you're getting 40% interest income in a country where inflation is 35%.  Probably in this example the currency is going to depreciate against the U.S. dollar, theoretically maybe by 30% to 35% per year.  You could get stuck paying taxes to the U.S. or foreign government on all your interest income.  

Same consideration with regard to your capital.  Yeah, you might be able to live comfortably on your interest income if it's 40%/year.  But if the value of your principal is depreciating by 35%/year, you're going to be poor quickly.

About the bank, you can limit risk somewhat by using a multinational bank like Citibank or HSBC or a government owned bank.  This doesn't eliminate risk though.  Just ask U.S. dollar deposit holders at HSBC in Argentina.  Still, a good idea.  Probably there are a lot of people in the Dominican Republic right now that wish they'd put their money in a safer bank.  One drawback to the multinationals -- sometimes they aren't as competitive on exchange rates and interest rates.  A plus -- it's often easier to open an account with a multinational.

And, finally, read DavidMN's post about 3 times.  Argentina isn't the only Latin country out there that's defaulted on debt.  I think the "Switzerland of the South", Costa Rica, has done it about 3 times.

[DavidMN]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

[This message has been edited by DavidMN]

Attractive at first glance, yes, but remember Argentina blew up only two years ago. And by many measures - per capita GDP, social development indicators, etc. - Argentina was/is a lot closer to first world status than Peru.

Do your research, check out the Fitch or Moody rankings, the tax consequences...and then invest only a little at a time.

[Red Clay]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

My wife says there have been times in the past when the Peruvian govt. froze/controlled the bank accounts held by foreigners in Peru. This was done during some of their worst economic times to prevent total collapse of the economy from everyone panicking and withdrawing all their money. She says during these times people were limited as to how much they could withdraw each month. The most recent time this occured was in the late 80's best she can remember. She has said she prefers to only keep pocket change in Peruvian banks when we retire there someday.

[Miguel]

... in response to Re: Putting Money in SA Banks ?, posted by Red Clay on May 17, 2004

Wasn't that during "Red Alan" Garcia's time in office?  Supposedly he's making a comeback and may be next in line after Toledo to lead Peru.  Not a good omen.

[Red Clay]

... in response to Re: Re: Putting Money in SA Banks ?, posted by Miguel on May 17, 2004

My wife thinks it happened during Fujimori's first term, but you're right about Alan Garcia.

[Heat]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

Advice?  Only invest money you don't care about.

[Heat]

... in response to Putting Money in SA Banks ?, posted by JimmySTLOUIS on May 17, 2004

Advice?  Only invest money you don't care about.