Offshore savings: Why it makes sense

With South Africa’s economy in the doldrums, and expected to grow at less than a percent this year, more and more people are looking at saving in international currencies like the US dollar, Botswana pula or British pound. In fact, the economic situation seems so dire that there have been calls for South Africans to take their money out of the country. However, this is not wise, as a hysterical reaction and physically moving assets out of the country will do even more harm to the economy. Instead, South Africans should turn to offshore investing, which allows you to save in international currencies without actually taking money out of South Africa.

Offshore saving is a ‘pro-South Africa’ investment as the money does not leave the country, unlike other offshore accounts. So, investing in a foreign currency won’t have any effect on the economy, and it helps you hedge against the volatile rand. In fact, the rand lost 2.4 percent between January 1 and the end of October. Although this decline seems minimal, the context is that the rand has been wildly volatile; touching strengths of around 12.40 to the dollar and lows of around 14.20 during this period. The currency’s continued weakness and volatility affects the price of everyday items such as petrol and other fuel, milk and bread, as well as higher-end items such as vehicles, and holidays abroad. South Africa is especially hard hit when the rand weakens because the economy is small in comparison to its global trade partners and, in fact, represents less than a percent of the global economy.

As a result, it makes sense to allocate some of your savings to international currency as a hedge. Not only does this protect assets from the currency’s volatility, but it also makes international travel more predictable because South Africans can invest in several currencies, allowing them to put money away into a currency that will be accepted in the country they travel to.

Foreign currency investment accounts are tools that ‘democratise’ savings because they give people the personal freedom to quickly, easily and conveniently put some of their hard-earned savings in foreign currency – via online banking. This doesn’t mean that a customer looking for the freedom for borderless savings can’t access their money though, it can be moved back into the local currency online. Opening and maintaining the account is free and transactions are just R75, which covers the exchange control checks required by the Reserve Bank.

Being able to open a currency account online cuts down on the time to open an account as, previously, customers had to go into a branch to open this type of account – and that meant waiting for as long as 14 days for the account to be opened. As a result, the rand might have shifted in between a client’s decision to save in foreign currency and when the account was opened. It is also possible to manage a foreign currency account from an online banking profile. Online access also democratises saving in different currencies because most people just don’t have access to buy forex to save in. For most, saving in a foreign currency means going through brokers and opening complex, costly accounts.

Future offerings will also see it become possible for clients to make online payments directly from currency savings accounts, which today can be provided to customers at an international banking branch. In addition, the South African Reserve Bank allows adults in South Africa to invest or spend as much as R1 million in offshore currency each year, without the need to provide additional documents. However, South Africans will need a tax clearance certificate from the South African Reserve Bank to take advantage of the foreign investment allowance that allows adults to invest up to R10 million a calendar year. Currency accounts democratise savings because they give everyone the personal freedom to quickly, easily and conveniently put some of hard-earned savings in foreign currency – it’s all connected to online banking and is quick and simple to use.

Yet, there are several factors to consider when investing offshore: buy when the rand is likely to weaken, and watch for continued political and economic instability, as this could cause the rand to weaken.

Apply for your Foreign Currency Investment Account here.