Foreign Perspectives

Archive for the ‘Banking’ Category

Interest rate changes by central banks are peculiar affairs.

For one thing, the banks aren’t actually obliged to respond by lowering interest rates although, usually, they do so by a similar amount. It’s usually a similar amount rather than exactly the same amount though which affects people differently: it’s common for banks to drop interest rates on savings accounts by a little more than the cut the central bank announces and loan rates by no more than is announced.

That sounds like they’re ripping you off, and to some extent they are, but what kicks in is the effect of their own administration on the processing of the loans and savings. Even if the central bank cut rates to zero, there would still be a charge for loans as that represents a risk to the bank, and savings rates would drop to zero or possibly a little below that as obviously there is a cost to processing savings too (they’d probably introduce charges rather than negative interest rates).

High interest products tend to represent higher risks so the rates on those aren’t always cut at all following a rate cut announcement.

And, of course, if you’ve a fixed rate loan then the payments on that will stay the same.

It’s obviously impossible to name a single bank which you can choose simply because no single bank operates in every country of the world.

There are some general pointers as to how to go about choosing your bank though.

One school of thought is that you should choose the local bank with the most branches in the area which you’re moving to. That’s a reasonable approach in that for most countries there’s a charge to use ATMs that aren’t owned by your own bank so it may save you on ATM withdrawal fees. However, be wary of local banks that don’t operate internationally on a widespread basis or that don’t attract many foreign customers as you can come unstuck very easily through not having local banking practices explained to you. This even applies in many cases where banks operate English speaking branches: they might well speak English but often banking terms don’t translate well.

The other school of thought is that you should choose a bank based in your own country but with branches in your new country. This can work well in that the banking staff should be more familiar with the banking practices that you’re used to and sometimes offer good deals on money transfers to/from your home country. So, for example, if you’re American then the best choice is usually Citibank as that operates as a local bank in many countries yet retains an American feel in every location in which it operates and offers good deals on transfers between Citibank accounts in other countries. However, if you’re British, you might think that HSBC would be the way to go yet because it bills itself as “the world’s local bank” it tends to follow local banking practices more than British ones although it does offer transfers to your HSBC accounts in other countries.

Don’t forget that you don’t need to choose a single bank. One combination that works very well is a local bank with low charges and lots of branches combined with an international bank to handle your global transfers.

Post offices in many countries around the world offer a range of banking services these days, but are they really up to it?

Typically a small post office will have one counter to do everything. That works well when “everything” is mainly posting letters and parcels which take a few minutes to process.

Add on banking services and you’re into a whole different league in terms of the time that it takes to process a transaction though. For one thing, opening an account takes ages and delays everything. OK, it’s not something that happens every day but it happens fairly frequently: I spent getting on for an hour in a queue in a post office today which ended up snaking right round the available space and out the door because two people were opening accounts.

The problem really stems from the practice of governments to consider post offices in country villages to be a “good thing” and therefore worthy of support. That in turn leads to them being considered a job creation scheme so, of course, you wouldn’t want to add too much automation into them as then you wouldn’t create so many jobs. What automation that there is often is counter-productive: posting my three letters took nearly five minutes because the stamps had to be scanned in and destinations entered into the computer.

So, no, I don’t know that it’s really true to say that many post offices could be considered banks.

Normally people move from savings to investment but draw the line at risky investments and don’t consider gambling as being in the same continum.

But it is. Certainly savings and gambling are very much at the extreme ends of that continum but some high risk investments aren’t nearly so far from gambling as the investment community in general would have you believe.

Is it any more risky to put £1 on a horse or to put £1 on a penny share? Well, sure, it’s usually riskier to put it on a horse BUT remember that whilst you might put £1 on a horse, chances are it would be more like £1000 that you’d be putting on that penny share which is a whole lot more to lose.

Of course, that difference in the amount of money involved is critical in how you should rate a gamble as compared to a very high risk investment. However, don’t forget that even the safest investments are also gambles as any investor in Northern Rock will tell you now or for that matter policy holders in what was the even more solid Equitable Life.

You’d think that that these days banking practices around Europe would be fairly standard. After all, the banks handle international business every day so they’re in constant contact with their counterparts in other countries.

Of course, it’s one of many areas where European business practices are far from standard.

Take the UK and France for example. Two countries with a very long history of interaction so you’d think that many things would be similar except that they aren’t.

In the UK, credit cards are commonplace and it’s normal, expected even, for people to have several of them. In France, credit cards are a relatively new phenonmen and remain very rare.

In the UK, almost everyone has an overdraft and the banks prefer you to be permanently overdrawn as they collect more fees that way. In France, they’ll close your account if you’re overdrawn more than a couple of months.

In the UK, debit cards don’t have any purchase limit on them. In France, you can’t buy more than 3000‚€ a month usually, which is why you often see people resorting to cheques towards the end of the month.

In the UK, nobody will accept a cheque without a cheque card (a card issued by their bank and guaranteeing the cheque will be paid). In France, almost everyone until recently accepted cheques because if you bounced a cheque you could be banned from having a cheque account at all. That actually worked well until very recently when the economic situation seems to have caused something of a run on dud cheques so the effect is that more and more businesses don’t accept cheques which is sure to cause trouble soon so long as that debit card spending limit remains.

Any one of those differences can easily fell you if you don’t know about it in advance.