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I have maintained small a Costa Rican bank account for about 9 months now (I use it to pay a local property care taker), and I thought I read somewhere that Costa Rican banks pay as much as 6% interest on deposits of more than $100,000. If this is true, why do all the retirement guides I read state that one should plan on only withdrawing 4 to 5% of their total savings so that the money will last till they don’t need money any longer (ie; death). Six percent interest on a simple savings account seem unreasonably high for what appears to be very little risk. Even money markets don’t pay that much. I would love to know how most ex pats have there money invested while living in Costa Rica.
Costa Rica banks will pay interest on colones and interest on US$ accounts but in comparing the risk you must compare apples to apples.
One of the local banks BAC San Jose is presently offering the following terms for one year deposits 7.24 on *colones* and 3.04 in *US$* so if you are being offered 6% I am assuming that’s a colones investment which you would only be able to make after buying colones with your dollars.
An investment in a ‘AAA” investment in Costa Rica is NOT the same a ‘AAA’ investment in the USA – 90% of the time they are two totally different and separate rating systems.
Scott Oliver – Founder
WeLoveCostaRica.comAuthor of ‘Costa Rica’s Guide To Making Money Offshore’
You just brought up an interesting point. Costa Rican banks are offering a higher interest rate on colones versus the dollar. The dollar no longer seems to be gaining ground on the colone. The exchange rate seems to stay fairly constant. Therefore doesn’t it make sense to put your money into a Costa Rican bank in colones just to get the higher interest, especially if you are living there?
My recollection is that the Central Bank began to allow the colon to float against the dollar sometime around last November. Since then, the exchange rate has been virtually unchanged at around 516/520 to the dollar. That certainly does argue in favor of keeping your account in colones and earning the higher interest. It also suggests, if this is a glimpse of the future, that you should borrow dollars which carry with them a much lower interest rate.
Profiting from the increase/decrease in foreign currency exchange rates is not for the faint of heart. Even experts with a lifetime of experience are only right half the time so as long as you appreciate that ….
I would suggest that unless you are a sophisticated investor who truly understands the risks involved, if you are earning US dollars from SS or investments that you stick with US dollar investments.
And as mentioned previously, you DO NOT KEEP ALL YOUR MONEY in Costa Rican or in any Costa Rican ‘investment’ firm. I recommend that you keep six months’ worth of cash living expenses here and the rest is invested outside of Costa Rica.
Many foreigners living here own their own homes here AND they have all their cash here, that is not sensible. You must be diversified.
Scott Oliver – Founder
WeLoveCostaRica.comMy Costa Rican account is in dollars. The Colon is still losing ground to the dollar even though lately that trend has slowed, probably due to the slipping dollar value on the world market. (The Euro recently reached a high point compared to the dollar)
The Costa Rican bank officers who make company policy are not likely to make an obvious mistake in exchange rate calculations when determining interest rates. I have to assume that whether you have dollars or Colones, it will make very little difference in interest earnings once you take out exchange rate variances.
I do agree with Scott’s point about diversification. However, aside from my Costa Rican property and some living expense money in my CR bank account, my intention is to leave all my investments in the stock market with U.S. brokerage/bank accounts and perhaps, depending on my future risk tolerance, a few more conservative investment instruments.Edited on Apr 30, 2007 13:12
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