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Saving and investing for expats

Saving and investing for expats

Save or invest? Invest or save? Whether you’re considering moving abroad, or are already enjoying the expat lifestyle, saving money is key to fulfilling your dreams.

As an expat, managing your finances presents a unique set of opportunities – and considerations. Many expats find themselves saving more than they did before they moved abroad thanks to higher income, and the often lower cost of living, as well potential tax efficiencies while abroad. It makes sense to take advantage of this to grow and protect your wealth.

Moving money between countries, dealing with multiple currencies and managing your finances in the home country you’ve come from, and the host country you’re living in adds a layer of complexity.

If you find you’re going around in circles when trying to decide the best way to grow and protect your wealth, this guide can help you work out what’s right for your needs – spoiler alert – it’s often a combination of both saving and investing.

For short term goals, a savings account remains the best way to maintain access to your cash. You can add to your savings in one-off or regular payments. And if you use an easy-access account, you can get back what you put in – plus the interest you've earned – whenever you want it.

A secure place for your cash?

Aside from accessibility, perhaps the biggest benefit of having a savings account is that it's safe. Savings accounts offer a secure place to store your capital whilst earning a fixed rate of interest. Some savings accounts allow cash to be deposited and withdrawn at any time, meaning it’s always available for emergencies. 

HSBC Bank plc, Jersey Branch is a participant in the Jersey Bank Depositor Compensation Scheme. The Scheme offers protection for eligible deposits of up to £50,000. The maximum amount of compensation in any 5-year period is capped at £100,000,000. Full details of the scheme and banking groups covered are available on the States of Jersey website.

So, is saving risk-free? Not exactly. Interest rates have been low for years so the return you'll get on your money will be very modest. There’s also a real risk that inflation could mean the spending power of your savings is eroded over time. In other words, your money could buy you less, the longer you save it. While this may not always be the case depending on where you are in the world, it’s worth keeping an eye on inflation rates as this could have a big impact on any savings you have in a particular currency. Make sure the currency you save in has low rates of inflation, or your money could lose even more value over time. 

For expats in particular, exchange rate fluctuations can also have a big impact on your savings and investments. To avoid any adverse effects, make sure you have a savings account in your most frequently used currency. If you travel a lot or live in several places, consider saving in a range of currencies.

Make saving automatic

Forgetting to put money away each month is often the reason people don’t save. If you take the need to remember out of the equation, you could reach your goals much quicker.

Whichever type of account you use to save your money, make it automatic. Set up a standing order or a Direct Debit and have it come out of your current account and into your savings account on pay day. That way, you can set it and forget it, knowing your saving habit will take care of itself.

With investing, the process can work in exactly the same way. A fixed amount can be invested on a monthly basis which in turn reduces overall risk. When looking over the long-term, it’s important to remember that time in the market is more dependable than trying to time the market.

Keep your emergency savings separate

One of the first measures of being financially fit is having an emergency fund. The idea is to have between 3 and 6 months’ worth of living costs within easy reach to cover any unexpected expenses.

As it’s hard to predict if and when you’ll need this money, emergencies should always be the first thing you save for. Make sure the money’s kept in an instant-access account so you can get to it if you need to. And avoid the temptation to dip into it for non-emergencies – like a holiday, for example. The money you save now could be used towards funding an even bigger or more permanent move later on.

Define when you want to access your money

Once you’ve got your emergency fund, take your savings habit to the next level by working out exactly what else you’re saving for, whether that’s moving back home, or buying property overseas. Whatever your goal, be mindful of when you think you’ll want to spend the money.

If you’re planning to achieve your goal within five years, be it putting down a deposit, or covering the cost of relocating, it makes sense to keep your money in a savings account. If you were to invest it, you could potentially suffer short-term losses and not have cash available when you need it.

Bear in mind, not all savings accounts are the same. With a fixed rate account or a regular savings account you may be able to earn a slightly higher interest rate in return for locking your money away for a fixed period of time.

Invest towards long-term goals

If you’ve got an adequate emergency fund in place, you might consider switching some of your monthly savings contributions into an investment fund.

Investing should always be seen as a long-term strategy of 5 years or more. The longer you invest for, the longer your pot will have to recover from any market falls. Over the long term, investing offers the potential to earn better returns than saving. But it’s important to remember there are no guarantees – your money can go down as well as up in value, so you could get back less than you invest. Our wealth growth calculator can help you plan appropriately, whatever – and wherever – your goals may be.

There are many different ways to invest, and they usually involve some sort of charges or fees. You can put money into shares – where you buy a tiny slice of an individual company, or funds – where you buy into a ready-made basket of investments managed for you by an expert.

When you invest, you're putting your money into something you believe will go up in value over time. That means you're exposed to a different type of risk – exposure to the markets – and so the value of your investment can and will jump around. Remember, your expected returns can also fluctuate and are not guaranteed and you could get back less than you put in. 

That’s why you should aim to invest for 5 years or more. A longer timeframe gives your investment more time to recover should it fall in value. By planning when you'll want access to your money, you can manage the risk that you take. 

It’s important to remember that not all investment risk is equal. And the benefit of taking a calculated amount of risk is it gives you the potential to make more money than you would from a savings account. Our wealth growth calculator can help you understand the risks and benefits associated with different levels of investment risk.

Additional considerations for expats

Retirement planning

A common issue faced by expats is paying into a pension scheme. You might not be able to pay into a scheme in your home country, but you’ll want to avoid creating small pension pots in numerous countries around the world. So you may need help working out how you can achieve the retirement you are aiming for.

Education fees planning

Saving for your children’s education is even more important for expats as you’ll want to ensure continuity and quality of schooling for them, wherever you go. It’s worthwhile researching the costs of international education – sending your child to an international school, or as they get older, overseas to university – and seeking financial advice to help meet those costs.

Flexibility in line with your lifestyle

As an expatriate, you may plan to live somewhere for a couple of years and then return home, but life is full of surprises. Perhaps, just as you think you are approaching the end of your posting, a new opportunity arises and instead of going home you move to another new country. 

As you move round the world you could end up with lots of different pots of money in different countries – and different currencies. Look at whether your financial service provider offers the flexibility to continue with them if you move to another part of the world.

Think about the impact of tax and currencies

It’s important to understand your tax situation as there may be advantages to working away from your home country. In addition, currency fluctuations can have a big impact on your savings and investments. Saving/investing in the currency linked to your long term plans – if you’re buying a property overseas, for example – makes sense to avoid the impact of adverse foreign exchange movements.

Which comes out top - saving or investments?

It’s really a question of which combination is right for you. The chances are you've got more than one goal you'd like to put your money towards. The golden rule is to save for what's around the corner and invest for the future. Sort your financial goals into short term and long term aspirations to help you decide the best way to manage your money.

Short term goals

(Less than 5 years)

Medium term goals

(5-10 years)

Long term goals

(10 years or more)

For money you'll need within the next 5 years, such as a deposit on a house or a holiday, saving makes sense because if you invest for under 5 years, your investment may not have enough time to make up any fall in value.

If you’re planning to put money away for 5-10 years, to pay for a child's wedding, perhaps, or take the trip of a lifetime, or to buy a property in the longer term (such as when you return back home),

 saving could still make sense – although if you're prepared to take some risk, investing could earn you a greater return on your money.

 

For money you're not going to need for 10 years or more, such as your retirement, taking a degree of investment risk could earn you a greater return –  compared with savings, whose value gets eroded by inflation over time.

Short term goals

(Less than 5 years)

For money you'll need within the next 5 years, such as a deposit on a house or a holiday, saving makes sense because if you invest for under 5 years, your investment may not have enough time to make up any fall in value.

For money you'll need within the next 5 years, such as a deposit on a house or a holiday, saving makes sense because if you invest for under 5 years, your investment may not have enough time to make up any fall in value.

Medium term goals

(5-10 years)

If you’re planning to put money away for 5-10 years, to pay for a child's wedding, perhaps, or take the trip of a lifetime, or to buy a property in the longer term (such as when you return back home),

 saving could still make sense – although if you're prepared to take some risk, investing could earn you a greater return on your money.

 

If you’re planning to put money away for 5-10 years, to pay for a child's wedding, perhaps, or take the trip of a lifetime, or to buy a property in the longer term (such as when you return back home),

 saving could still make sense – although if you're prepared to take some risk, investing could earn you a greater return on your money.

 

Long term goals

(10 years or more)

For money you're not going to need for 10 years or more, such as your retirement, taking a degree of investment risk could earn you a greater return –  compared with savings, whose value gets eroded by inflation over time.

For money you're not going to need for 10 years or more, such as your retirement, taking a degree of investment risk could earn you a greater return –  compared with savings, whose value gets eroded by inflation over time.

Managing your savings and investments with HSBC Expat

If you’re living abroad, or you're due to move, our award-winning services for expats will help keep your money working as hard as ever. We’ve got plenty of options for managing your wealth, whether you’re a seasoned investor or a total first-timer.

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Disclaimer

HSBC Bank plc, Jersey Branch has prepared this article based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. 

The HSBC Bank plc, Jersey Branch and the HSBC Group are not responsible for any loss, damage, liabilities or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article. The contents of this article are subject to change without notice. HSBC Bank plc, Jersey Branch and the HSBC Group give no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this article. 

This article is not investment advice or a recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. This article should not be used as the basis for any decision on taxation, estate, trusts or legacy planning. You should not use or rely on this article in making any investment decision. HSBC Bank plc, Jersey Branch and the HSBC Group are not responsible for such use or reliance by you. 

Any market information shown refers to the past and should not be seen as an indication of future market performance. 

You should always consider seeking professional advice when thinking about undertaking any form of prime residential or commercial property purchase, sale or rental.

You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this article.

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