I've got a banker's draft of all my savings in Euros, which I took out from my bank in Germany before coming back to the UK (where I live now). Now I don't know what to do with it. Place it in a fixed deposit foreign currency account where the interest rates are as low as 1.05%, or convert to sterling now and potentially lose out on favourable exchange rates later? I won't be needing the money for at least a year, if not more. Any suggestions? And if you reckon convert to sterling, then can you suggest the cheapest possible place to do it?
Looking at the short term Euro yield curve (see rates at for example ) it would seem that the Euro rates will be stable (or marginally increasing) around the current level.
The Sterling rates have a more significant upward trend, so are expected to rise more than the Euro rates, and probably move upward rather than staying around the current level.
The key question is whether or not you will be looking at converting the money to Sterling only to benefit from the difference in interest levels, and convert back to Euros later. If this is the case you are talking about speculating in the FX market which is not advisable for private investors with small (?) investments. (It also has substantial risk as the differences in interest rates are expected to reflect expectations of changing exchange rates)
My best advice is -- please, for crying out loud, don't rely upon the advice of a random set of people in a newsgroup, when your life's savings are at stake!
Having said that, and noting that my advice -- as is the case for anyone else's here -- is worth exactly what you paid for it (nothing whatsoever):
Let's work the maths, here. You could get over 5% in a sterling account. You'll get only 1% in a Euro account. The only way that it's worth waiting to exchange would be if you expected the Euro to get 4% stronger (per year) or more, against the pound. If the Euro gets weaker instead, you stand to lose (I assume) quite a lot -- certainly a large percentage.
The next general election will be any time between now and 2006, and it will affect the exchange rate markedly. We could have another terrorist atrocity of the 9/11 type, on British soil. Any of a large number of things could happen to make a substantial change in the exchange rates. The only thing is -- neither I nor anyone else here can predict whether the rates will go up, or down, or by how much.
Right now, you *know* what the exchange rate is, and you know you'll get a better rate of return in a sterling account. If it was my decision, I'd convert now.
Regarding exchange: you can get a much better rate (and lower charges) if you go to a currency broker than if you simply accept the High St. bank exchange rate. Do a bit of research; find a currency broker to do the conversion at a rate that suits you, and the amount that you're exchanging.
I agree with the general sentiments. I work with Euro/Stg exchange rates every day, as I import things priced in Euros. The rare has moved steadily up in the last year, and the pound is currently buying 1.4811 Euros. I have seen it move from 1.40 to 1.45, staady a while, then move up to 1.51. It has now started a slow decline. Who knows if this will continue, or go back up? As the post above says, the rate depends on interest rate differences in the two currencies.
My personal view is you should convert if you need the money in the next year. The better returns in STG will outweigh the transfer (just) and I don't see the Euro getting weaker. If you decide to do it, your bank can put you on to their dealers who can quote you a rate for conversion and will fix it. You then use this contract with your local branch. Don't whatever you do just ask them to convert it. If you don't like the rates, you can get other money brokers to do it for you.
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