What are expat savings plans and should you get one?
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An expat savings plan, as the name suggests, is a type of savings account designed for the needs of expats.
These typically come in the form of insurance investment plans for expats provided by banks, locals, and banks, as well as expat financial advisors and wealth managers.
The purpose of an expat savings plan is to make it easier for you to save money while abroad. You can open an expat savings plan by visiting your local bank or online brokerage.
There are some differences between different kinds of plans. Some plans require you to have a certain amount in the account before they start paying interest on it.
Other plans pay you interest on your balance every time the balance reaches a certain level.
But many plans often contain a contributions period, with the shortest period of time frequently set at 5 years, and the largest periods set at 25 to 30 years. In the expat markets, the 20- to 30-year savings plans are typically more widely available.
In this article, we will discuss all you need to know about these plans and discuss whether they are right for you and your financial needs.
What should you know about expat savings plans?
An expat savings plan is a type of savings account designed for the needs of expats. It’s often called an “expatriate” or “overseas” account, but these terms are misleading because anyone can open one, even if they’re not working abroad.
It differs from a normal savings account at a bank in several ways, such as having restrictions on how much money you can withdraw each year or any at all before the contribution period is over.
Some providers will allow you to take out whatever amount you want as long as it’s under some limit or another; others have limits on how much they’ll let you take out every month or quarter, while still others will only allow withdrawals once every few years.
The purpose of an expat savings plan is to make it easier for you to save money while abroad, and as such many providers discourage early withdrawals to get expats to commit to their investments.
Here’s how they work: You sign up with a company that offers an expat savings plan. Maybe it is from a big bank like HSBC or Citibank. Then you choose how much you want to contribute each month–anywhere from $50-$500 per month is common.
Your money then gets invested into insurance or other securities that promise returns at the end of your contract period.
These plans typically originate from a number of offshore locations, including the Isle of Man, Jersey, Cayman Islands, Bermuda, Puerto Rico, Guernsey, and many others.
These plans are offered anywhere in the world. Singapore, Hong Kong, Dubai, Abu Dhabi, Qatar, Amsterdam, Shanghai, Thailand, particularly in Bangkok, Kuala Lumpur, Jakarta, Ho Chi Minh City (HCMC) in Vietnam, Spain, France, Tokyo, South Africa, Seoul, Germany, Switzerland, and Brussels are some typical locations where the plans are offered.
The programs are also offered in Manila, Laos, India, Cambodia’s Phnom Penh, and numerous more developing nations with a growing expat population.
These plans are purchased by people from all over the world. Our personal experience finds that British expats are often the most likely to purchase these plans, followed by Nordic, French, Indian, Chinese, Australian, and others from a large number of other nations.
Due to the qualifying recognized overseas pension scheme (QROPS) and self-invested personal pension (SIPP) for British expats, the lump-sum policies linked with these life companies are also widely promoted in Australia, Canada, and New Zealand.
Keep in mind that many of these plans charge heavy fees for early withdrawals on top of their existing fee structure.
Due to sales and administrative expenses, the cost of the programs is often assessed upfront. At the conclusion of the plan, a portion of that cost is then repaid to the client in the form of bonuses.
Let’s use the straightforward example of someone who purchases a 10-year savings plan. The total cost of the plans is frequently 1%–2% per year if the premium is paid over 120 months.
That sounds reasonable. The actual cost, however, is closer to 4% each year if the client quits paying halfway through the contract because the end-of-contract bonuses are typically not returned to the client.
You might be able to choose a less expensive option or lower the account’s current cost structure depending on the terms and conditions attached to your account.
If you manage to fully commit to an expat savings plan, then great! You are among the few whom these plans are made for.
But realistically, barely 3%–4% of people pay for the typical 20- to 30-year terms associated with these plans. It is possible though to generate respectable returns from 10- or 15-year strategies.
Even so, a lot of people stop contributing to their plans because the charge structure is exorbitant in the initial years.
The human mind is fickle, and many clients frequently cease contributions because they fail to see the pay-off that is the sizable bonus at the conclusion of their contract. Many also find that their needs have changed during their contribution period, and thus withdraw early.
The charges on these expat savings plans are not typically applied regularly, which adds to the confusion. For instance, the billing structure for the Generali plans increases significantly in years 7, 8, and 9. So high that generating any on-paper returns is difficult.
Yet from year 10, the fee schedule substantially decreases to around 0.2% annually. As a result, many people quit making contributions after 6, 7, 8, or 9.
Should I get an expat savings plan?
In general, unless you can contribute every single month, you should stay away from traditional plans as they are a waste of your resources.
Younger providers also offer more flexible plans.
In most cases, if people cease making contributions, the plans either lose money annually, break even, or at best, they make 4% annually.
In some circumstances, due to non-contribution, if markets are performing at 8%-9%, the client’s account may increase by 4% if the correct funds are chosen, despite the fact that the cost of the account will soar to above 4% each year.
These savings plans also often include a “indemnity period” of 18 months. That implies that you will lose all of your money if you stop making contributions before the first 18 months. The indemnification periods for the Generali plans’ five- and ten-year options are also under one year.
It is a myth that you would actually lose all your money if you stop contributing after 18 months. Instead, the hefty fees will reduce the returns.
Given all these reasons, it is easy to see that these plans are generally not particularly adaptable. While you can stop contributing, lower, or raise your premium after the initial time is over, each option has drawbacks. Even with your premium reduced, it’s still possible to see extremely little gains or losses.
This is due to the billing structure’s foundation in the original premium. For instance, even if you cut your monthly premium from $2,000 to $300, the percentage-based billing structure will still be based on the $2,000 premium.
Fees vary between providers, but expat savings plans all share common traits:
have excessive prices. Although some have higher fees in some years than others, they are relatively similar overall.
if you don’t pay in every time, you’ll be charged exceptionally large costs. If you deposit money into the accounts on a monthly basis until they mature, you will be partially reimbursed for the fees of the accounts. You frequently cannot receive the benefits if you miss even one month.
Compared to alternative lump-sum and modern savings plans, these are significantly more expensive.
If you are 110 months into a 10-year savings plan, it is obviously advantageous to make contributions for the remaining 10 months since you will receive incentives that will lower the account’s average cost. Similarly, if you have only been investing for 5, 10, or 15 years, it might be worthwhile to keep going.
Particularly if you have only invested a little portion of your income, this will be the case. It is reasonable to assume that a foreigner who earns $10,000 after taxes will be able to pay a $500–$1,000 monthly premium. An expat living on $3,000 per month might find it difficult to keep the premium level.
We’ve talked about the drawbacks. Now let’s discuss the benefits of these investment schemes.
What are the benefits of expat savings plans?
If you’ve got the discipline to commit to them, expat savings plans can help you meet your financial goals, like buying a house or paying for college for your children.
The purpose of many expat savings plans is to help you save money for retirement with minimal impact on your paycheck—a goal that many find themselves unable or unwilling to achieve alone. They offer affordable premiums that are often suited for any goal.
If you’re looking for ways to boost your nest egg abroad, this could be one way for you do it without breaking the bank.
Regardless of your age, your chances of profits increase the earlier you start investing. This is due to the idea behind compound investments, which is that as you put more time into investing, the more time your money can have to accrue interest and to profit from compound returns in the future.
The nicest part about an expat daily investing package is that it can be customized to practically anyone’s financial needs, so you can use it to save for anything from a second house to a yacht to college expenses.
But, before beginning the process of setting up your expat monthly investments, just like with any other area of financial planning, you must review your priorities, timetable, and options.
Aside from its simplicity, having an expat savings plan also has the potential benefit of becoming a safety net for one’s future. At the end of your term, you can typically choose to have your funds paid out in full all at once.
Another benefit is that expat savings plans allow you to contribute no matter where you live. You also have a choice of how, when, and in which currency to do it. What’s more, your returns may or may not be taxed depending on your country of origin.
Keep in mind that likelihood that inflation will gradually reduce the purchasing power of your investments is still very significant. In other words, your purchasing power decreases the more you save.
Even while this may not always be the case depending on where in the world you are, it is important to keep an eye on inflation rates because they can have a significant impact on any investments you have in a particular currency.
If the currency in which you are saving has a low rate of inflation, your savings will lose value over time.
Exchange rate changes could significantly affect your finances and assets, especially if you’re an expat. Have a savings account in the most widely used currency to stop the bad effects. If you travel frequently or have multiple homes, consider making investments in other currencies.
Also remember that to gain benefits from these plans, you need to be willing to commit. The money you put into the account can’t be withdrawn until the end of the term, so if you’re not sure that you can stick with it for five years or up to 30 years (the length of most expat savings plans), don’t bother signing up.
You may not be able to withdraw money from the account early as well. Some providers offer flexible withdrawals but they tend to charge higher interest rates than fixed-rate options.
If this is important for your needs and budgeting strategy then look for an alternative provider instead of trying to switch later on down the line when things might get difficult financially.
How do I start an expat savings plan?
If you are convinced that you can commit to their restrictions and that expat savings plans are for you, you are likely to find them being offered by your local bank or online brokerage.
You can also find them online from companies specializing in expat finances, financial advisory companies, and wealth management firms.
In most cases, it’s not necessary for expats to visit their banks in person—they can do everything online or over the phone.
If you’re interested in opening an account at a physical branch at your local bank, take a look at the options available to you. Many banks have special offers for new customers, so be sure to ask about any promotions before signing up for anything.
Most brokers offer services like automatic deposits and transfers between accounts (which will make it easier for you manage multiple accounts), as well as free access to financial tools such as online trading platforms and live chat support during market hours.
There are some differences between different kinds of plans. It is important that you take note of things like interest rates, fee structure, contribution period, length of your contract, and indemnity period if there is one.
Some savings plans have higher interest rates than others, so it pays to shop around and compare. You want to look for a safe investment that will help grow your money over time, so aim for an account with a high rate of return.
Some plans require you to have a certain amount in the account before they start paying interest on it. Some have a minimum period in which you need to have been paying contributions.
Additionally, Interest may not be paid on your entire balance at regular intervals. Instead, gains could come monthly or quarterly over several years depending on how long it takes for you reach the end of your contract.
Other plans pay you interest on your balance every time the balance reaches a certain level.
One thing you should always remember is that these accounts are not free. They usually require hefty fees from management and administrative costs, so do be sure that you read the terms of your contract carefully before committing to one.
What about offshore savings accounts?
Opening an offshore savings account is the first step to creating your expat savings plan. You should open a bank account in the country you are moving to, even if you don’t plan on using it right away. This will allow you to transfer money into your new account and start saving as soon as possible.
For example, if you’re from the United States and want to invest in British pounds (GBP), then an offshore savings account would be ideal for this purpose because they allow you to buy and sell currencies at market rates without paying any fees or commissions.
However, not everyone should use these types of accounts because they often require high minimum deposits and charging fees on withdrawals before allowing access back into local currencies like dollars or euros, so make sure before signing up.
Managing your financial obligations across different nations and regions can be made easier using offshore accounts, commonly known as offshore bank accounts or offshore savings accounts.
If you need to send or receive regular overseas payments and transfers, these accounts will benefit you in the long run.
Most expatriates have at least two bank accounts: one in their country of origin and one in the country in which they are presently residing. Many people also think about opening an offshore account because it might be a good method to manage, invest, and save money while traveling.
Here are some factors to consider when choosing an offshore savings account:
The interest rate you’ll earn on your savings is one of the most important things to look at when comparing different accounts. You should also be aware that many banks offer higher rates on their checking accounts than they do on savings accounts, so it may be worth opening a checking account at the same time as your offshore savings account if this is something that interests you.
Minimum deposit, balance requirements, and monthly fees. Not all banks require a minimum deposit or balance in order for their customers to keep their accounts open, but many do–and some also charge monthly maintenance fees even if there’s no minimum requirement for deposits or balances.
Each type of account may have different features and benefits. The following are some of the more common ones shared by offshore accounts:
- savings and investments put into the account may hold tax benefits in a range of currencies, though this may vary and would depend on your circumstances
- maintain funds, send and receive payments in several currencies
- control foreign currency and have access to global expertise and investment guidance
- keep your funds tied to your local accounts in a safe, central location.
- every time you relocate, maintain the same bank account.
Additionally, they frequently include standard banking capabilities like a debit card, internet, and mobile banking.
When in doubt, seek the advice of a professional. A trusted financial planner can compare plans for you and give you recommendations tailor-suited to your needs as an expat.
An expat savings plan can help you meet your financial goals, but only if you are willing to commit to restrictive payment schedules for long periods of time.
In the best scenarios, expat savings schemes could guarantee your financial security in the face of uncertainty and give you peace of mind as an expat.
Although international savings plans are frequently considered a workable form of retirement planning for the global populace, it is important to remember that they are not pension plans.
Before making any decisions and, in the worst cases, incurring financial loss, it is crucial to consult a professional about your unique position and plans.
There are frequently more practical alternatives, and not everyone can or wants to invest, or benefits from shifting their money abroad. Planning ahead is essential since life savings and retirement arrangements are complicated issues that the expatriate lifestyle does little to help.
There are other, much more flexible and outright better options if you want to grow your money. If you want to know more, or if you want to hear our thoughts on a particular expat savings plan, do not hesitate to get in touch.
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