Thursday, June 30, 2016

Pros / Cons of Swiss Bank Accounts in Currency Terms

The historical attraction of Swiss bank accounts has been the idea of safety and tax mitigation for a large international clientele.

In our view, potential tax savings is not the key issue but rather currency safeness. Depending upon which country you call home, a Swiss based account domiciled in the local Swiss franc currency (CHF) may be a great investment or mediocre at best.

Switzerland with large foreign exchange reserves currently has an overvalued CHF currency as measured by purchasing power parity and also verbally expressed by officials form the Swiss National Bank - their central banking authority.

Let's say one wishes to open and invest monies into a well respected Swiss banking institution. The ultimate success of your investment will depend in a large part based on currency valuation and timing of your initial purchase.

With interest rates on Swiss bank accounts ranging from 0 to 1%, there is minimal return based on interest income.

However, if your home country for example is Nigeria, a CHF based account at today's valuation would have been a smart move since the Nigerian naira has declined by 20% in value over the last year.

If you were a European national say from Germany prior to January 2015 when the then Swiss franc was pegged to the euro (EUR). After de-pegging in January 2015, the Swiss franc soared by 30% in value from the 1.20 CHF to EUR to the 0.805 level. Today, the Swiss franc floats in the market with a current valuation of 1.08 CHF to buy one EUR and/or 0.98 CHF to buy one US-dollar (USD). Even with modest depreciation of the CHF from the 0.805 trading range after de-pegging, the German investor is still well ahead based on currency capital gains.

A Swiss franc bank account from a Venezuelan national a couple of years ago would have been a terrific investment as the Venezuelan bolivar has since collapsed in value. The Swiss franc provided the necessary currency stability as this is one of the key important traits worldwide investors seek.

An American investor who opened a CHF based account shortly after removal of the Swiss franc peg from the Euro back in January 2015 would be underwater on currency valuation by 15% in capital losses. Although invested monies would receive minimal interest depending on deposit size, the overall position is still in loss. Plus, US citizens must report these accounts along with the necessary paperwork to the IRS for offshore reporting and tax obligations.

Timing is everything, the U.S. investor over the last year and a half would have most likely been better off holding their monies with American banks back on the continental USA.

Every investment time frame window is different. One needs to look at currency valuations, interest rates paid on accounts and tax reporting requirements to see if an offshore investment makes sense.

A Venezuelan citizen holding bolivars for the long term is not too thrilled at this current time.

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