While a higher interest rate in your home country might seem appealing, holding savings in a foreign currency comes with certain risks, particularly currency risk, that can lead to large losses accruing over time.
By foreign currency, we refer to a currency other than that in which you are spending in day-to-day life.
In essence, you run the very real risk of the foreign currency depreciating against a strong CHF.
If we look at the 10-year performance of the CHF against other popular currencies*:
CHF:GBP - The Swiss Franc is 19.35% up.
CHF:EUR - The Swiss Franc is 8.82% up.
CHF:AUD - The Swiss Franc is 27.40% up.
CHF:JPY - The Swiss Franc is 27.90% up.
CHF:USD - The Swiss Franc is 3.56% down.
This trend highlights the long-term strength of the CHF. However, we do see that the USD has gained slightly against the CHF.
Taking this into account, it is important to note that this does not automatically make the USD a safe haven for your savings. The performance of the USD reflects its relative strength as a global reserve currency and its resilience during periods of economic uncertainty. However, this recent performance does not guarantee similar outcomes in the future, especially as the CHF historically holds its value due to Switzerland’s stable economy and strong monetary policy.
Keep in mind the risk you are taking if you were to place a bet on the USD continuing this trend in the future, which we will explore further below.
A key concept to consider is interest rate parity, which suggests that differences in interest rates between currencies are often offset by exchange rate movements.
For example, while a foreign currency account offering 4% interest may seem more attractive than a Swiss account offering 0.50%, any gain could be offset by the foreign currency depreciating against the CHF, as proven in most cases above.
If you live, earn, and spend in CHF, holding savings in another currency effectively becomes a bet that the foreign currency will strengthen relative to the CHF. However, this carries risks, including:
Ultimately, while diversifying your currency exposure can be part of a good broader investment strategy, it is rarely advisable to move all your savings into a foreign currency purely for a higher interest rate. Instead, consider alternative ways to grow your wealth, such as investing in diversified assets that align with your financial goals and risk tolerance.
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Please note that all content within this response has been prepared for information purposes only. This response does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.
*source: Xe