Is it time to Invest in US Dollars?

With the exchange rate over £1.00 to US$ 2.00, now may be the ideal time for Sterling investors to consider investing in US Dollars.

Last week the US Dollar hit an all-time low against the Euro and a 26 year low again Sterling and, whilst there is no immediate signs of a recovery, in all likelihood it will be closer the long-term average of £1.00 = US$ 1.55 in 3, 5 or 10 years time. With this in mind, investors should consider the option of establishing their offshore savings or investments in Dollars.

Both offshore account and offshore bonds will continue to grow tax-efficiently regardless of the currency that they are established in and offshore bonds will continue to benefit from their other tax advantages; such as the ability to withdraw 5% per annum with the tax deferred and time apportionment relief which allows the bondholder to substantially reduce any potential capital gains tax liability in the future. Additionally, there could be favourable growth benefits.

If the exchange rate does revert to the long-term average, there are huge gains to be made when it becomes time to switch back to Sterling. For example, an investment of £200,000 into a US Dollar based offshore bond would give the bond an initial value of US$ 400,000. Assuming just 6% growth per annum, the bond would be worth in the region of US$ 535,500 in 5 years time. If at that time, the exchange rate is back to the long-term average, this would equate to £345,500 – a massive 73% increase from just 6% per annum growth in low risk funds!

Even if the exchange rate had just fallen back to £1 = US$ 1.75, the Sterling value would still be US$ 306,000 – as compared to £267,500 if the bond was established in Sterling and has achieved the same growth rate.

For those who wish to keep their savings in Sterling and still take advantage of the exchange rate, the offshore bond has just the flexibility you need. A Sterling bond can purchase US Dollar denominated funds very cheaply and can sell these at any time without penalty or a taxable event occurring; this means that, should you feel the US Dollar is at a high in 2 or 3 years time, you can immediately switch out of Dollars and into Sterling at that time (or even Euros if preferable). Additionally, purchasing the funds through the bond means you by them at net asset value and do not pay hefty brokers fees or bid-offer spreads.

Naturally, playing the currency markets does add an additional element of risk with some analysts’ believing the Dollar will weaken even further before it strengthens, but it is an option worth considering to all but the most risk adverse of investors.

To speak to one of Candour Consultancy’s fully qualified consultants regarding the most suitable offshore bank account or offshore bond for your personal circumstances, just click the ‘contact us’ button below and provide us with your preferred contact details and a summary of how we can help.