Expat Forum For People Moving Overseas And Living Abroad banner

1 - 20 of 41 Posts

·
Registered
Joined
·
92 Posts
Discussion Starter · #1 ·
Hello all , I have very specific questions about opening a CD or investment account here in Mexico. I have read advise here never to do it. Why? Has a major bank here like Santander or bancomber or HSBC gone under before? Is fraud and theft with no federal insurance a problem a problem , even with a CD? The interest rate on a 1 year CD in the USA is .05 here it is 5%. some here on line say it is because of the instability of the government? Do you believe someone could be elected that would just take your money, or NAFTA disappears and everyone loses everything? Please all posters with investments here in Mexico help me understand? Thank you.
 

·
Registered
Joined
·
160 Posts
I suspect the reason is because the peso is generally weak & typically declines against the dollar, and they're afraid of another devaluation like the one from MXP to MXN. This is just conjecture on my part, though.
 

·
Registered
Joined
·
700 Posts
I can't speak for them but I believe the naysayers are looking back at the Mexican Peso Crisis of December 1994. There is plenty of info on the internet on that topic. Personally
- I think Mexico is in a different place today.
 

·
Registered
Joined
·
700 Posts
I suspect the reason is because the peso is generally weak & typically declines against the dollar, and they're afraid of another devaluation like the one from MXP to MXN. This is just conjecture on my part, though.
In my humble view - most everything is cyclical. Today the Peso is at 18.16.

The 52 week range is 17.904 - 22.029.
 

·
Registered
Joined
·
3,452 Posts
You are possibly reading articles from US "financial speciaists" who always, no exceptions, start their articles with a similar senario about Mexico as do Texans. :) : "Mexico is corrupt from the top to the bottom". This is suspect as that claim is unknowable and corruption is only know to those involved in corruption at any given time and not by anyone else. So if news reports are statistics Mexico has some corruption in specific proven cases and not from the top down. Maybe 1/10 of 1% of the billions of yearly transactions envolved some form of corruption reported and verified. With these types of articles just think what is the advantage of those writing them? To get people to send their money in investment accounts in foreign countries or get people to put their money in investement accounts in their own country where their base readers make commisions off these accounts. A win win situation for the writer and his countrymen.
 

·
Registered
Joined
·
1,837 Posts
I suspect the reason is because the peso is generally weak & typically declines against the dollar, and they're afraid of another devaluation like the one from MXP to MXN. This is just conjecture on my part, though.
This is a "is the glass half full or half empty" assumption. In comparing currencies, it isn't that the Peso is weak but that the US dollar is very strong. Compare the US dollar to the British Pound or the Euro over a period of 2 or 3 years.
 

·
Registered
Joined
·
2,237 Posts
Higher inflation rates may be one reason, from Mexico Daily News: June 8th. 17


The annual inflation rate soared to 6.16% last month, the national statistics institute said today, double the target rate set by Mexico’s central bank.

Bank of México head Agustín Carstens said at the end of May he believed inflation was under control, and predicted it would drop towards the end of the year, returning to the target of 3%, plus or minus a point, in 2018.

But the prices of some goods, including agricultural products, helped push the May rate to the highest since the global financial crisis in April 2009 when it reached 6.17%.

The rate at the end of April was 5.82%, the highest since early 2009.

Analysts surveyed by the bank last month raised their forecast for the inflation rate at the end of the year to 5.9%, up from 5.7%.

- See more at: May inflation rate was highest recorded in eight years
 

·
Registered
Joined
·
92 Posts
Discussion Starter · #10 ·
My AT&T stock pays a dividend of 5.05%
My Verizon stock pays a dividend of 4.94%

why lock up a 5 year CD for 2.25%?
. Tech stocks crashed this week Stock market crazy high on things they hope will happen , in a weird unpredictable world , and Batman just died and won't be around to save us.CD is a safe port.
 

·
Registered
Joined
·
700 Posts
My AT&T stock pays a dividend of 5.05%
My Verizon stock pays a dividend of 4.94%

why lock up a 5 year CD for 2.25%?
It has been a while since we have owned any US stocks. Individual investment grade bonds sure - we hold them to maturity.

The 6 month CETE I purchased Tuesday directly from the Bank of Mexico pays 7.25 %
 

·
Registered
Joined
·
716 Posts
CDs expose you to inflation risk, and in my opinion do not adequately compensate you for it. You're giving up yield in exchange for the safety of the principle.

There is a very good reason for not opening an account here in Mexico that has not been given in this thread. It only applies to US citizens/residents but not others, (but your 'flag' says originally from USA so I assume these rules apply to you).

Google "FINRA and FATCA rules" and make sure you understand your obligations under those rules before you do anything that might break those rules as the penalties are severe.

We've been over this before, and there's someone here who will tell you not to worry about it that the bank handles everything and you don't have to do anything. I disagree, you need to be aware and you need to make sure the bank is doing what it is supposed to and I think there are additional forms that need to be filed directly by you in at least some cases.
 

·
Registered
Joined
·
2,237 Posts
It has been a while since we have owned any US stocks. Individual investment grade bonds sure - we hold them to maturity.

The 6 month CETE I purchased Tuesday directly from the Bank of Mexico pays 7.25 %
And like I related on an earlier post:


"The annual inflation rate soared to 6.16% last month,"

Just like gas in Mexico always goes up,up,up, unlike the US where is fluculates with the world market Mexican gas never goes down ........gas goes up 22% this year so goes cost of goods to market........
 

·
Registered
Joined
·
716 Posts
One of the timeless pearls of wall street wisdom is "don't fight the fed".

Since 2007 the fed has been actively encouraging investors to own stocks by setting interest rates near zero for most anything else. That may finally be starting to change, but if you went along with the fed for the last 10 years you have been richly rewarded.

For example, by simply buying an S&P500 index fund after the crash in 2007 and holding it for 5 years you could have achieved 20% growth per year, more than doubling your money. A 5 year CD would have given you a pittance.

But I think that many, if not most, people have extremely low tolerances for principle risk and prefer to take on other kinds of risk (such as opportunity cost, inflation risk, and exchange rate risk). Forgive me for being a cynic, but I think that's because they simply don't understand the other kinds of risk as well as they understand principle risk.
 

·
Registered
Joined
·
92 Posts
Discussion Starter · #15 ·
I live a simple life social security is my only income , I rent with all utilities included , I have no car and I shop at local markets. How will inflation effect my interest income? I don't think the interest I receive from my savings will impact my taxes much if at all . I understand filing USA and Mexico taxes showing interest income. Unless Mexico taxes my social security ? I am a permanent resident here. I had friends that lost their entire life / retirement savings when the stock market crashed. I am not going that route because I am too old to ever get it back. The official at the bank stated Mexican taxes would be withheld from the interest of the CD. And I believe that as long as I report the interest income on my USA taxes I should be fine? Maybe I am wrong?
 

·
Registered
Joined
·
700 Posts
CDs expose you to inflation risk, and in my opinion do not adequately compensate you for it. You're giving up yield in exchange for the safety of the principle.

There is a very good reason for not opening an account here in Mexico that has not been given in this thread. It only applies to US citizens/residents but not others, (but your 'flag' says originally from USA so I assume these rules apply to you).

Google "FINRA and FATCA rules" and make sure you understand your obligations under those rules before you do anything that might break those rules as the penalties are severe.

We've been over this before, and there's someone here who will tell you not to worry about it that the bank handles everything and you don't have to do anything. I disagree, you need to be aware and you need to make sure the bank is doing what it is supposed to and I think there are additional forms that need to be filed directly by you in at least some cases.
Let's start with the forms. You need to file FINRA forms (online) and you need to file an 8938 with your taxes if you exceed a certain threshold. That is all the forms you need to deal with. For us the FINRA form has the exact same information as the 8938. I would probably file both - even if I were not required to - for peace of mind. They can't fine me for being overly honest...

All of the Mexican financial institutions we deal with provide us with a timely annual report of the status of our accounts for the previous tax year. All of them comply with the FATCA regulations. They file independently of us with the IRS but we are still required to file our own forms.

The banks 'handle' nothing. You have to take the information you have from your statements, combined with the annual reports from your Mexican institutions and complete forms as best/honestly as you can. So it comes down to - rather than waiting for your US banks to send you a 1099 - you have to create your own and file that with your taxes.

By all means - if math intimidates you - or you can't think for yourself - you should never consider investing in any institution which will not 'handle everything' for you. But it is a BIG world and there is no reason that a US citizen should be required to invest solely in the US.

Something else not touched on in this thread is diversity of your investments. What happens when you have all your money tied up in a US money market account and something happens (which they are already talking about) and they say you can not withdraw your funds due to market volatility (or perhaps without a sizable penalty). I'm not making this scenario up. You need to read the prospectuses they send you.

I've got no skin in your game. I'm just sharing with you my viewpoint.
 

·
Registered
Joined
·
700 Posts
I live a simple life social security is my only income , I rent with all utilities included , I have no car and I shop at local markets. How will inflation effect my interest income? I don't think the interest I receive from my savings will impact my taxes much if at all . I understand filing USA and Mexico taxes showing interest income. Unless Mexico taxes my social security ? I am a permanent resident here. I had friends that lost their entire life / retirement savings when the stock market crashed. I am not going that route because I am too old to ever get it back. The official at the bank stated Mexican taxes would be withheld from the interest of the CD. And I believe that as long as I report the interest income on my USA taxes I should be fine? Maybe I am wrong?
I am not an accountant - far from it.

Mexican banks etc will withhold 0.6% in taxes on your earnings - which - if you were a Mexican citizen is all the taxes you would need to pay on your earnings - unless you had A LOT of income. Unfortunately if you are a US citizen that is not good enough. You need to report your interest to the IRS and pay them as well. If there is good news in that scenario - you can claim an exclusion of the taxes you already paid Mexico so you are not double taxed.

We have never made a significant amount of money in the stock market - but we never lost a significant amount either. I purchased my first share of Microsoft in 1983 - and I lost money. The only time we made money in stocks was when I was issued 'founders' shares in a small company at 15 cents a share that later sold for more. I would never have paid more than 15 cents - but in the end people did...

There is an excellent forum on this site with some super helpful/informed people. Search on 'expat taxes' on this site.
 

·
Registered
Joined
·
716 Posts
I live a simple life social security is my only income , I rent with all utilities included , I have no car and I shop at local markets. How will inflation effect my interest income? I don't think the interest I receive from my savings will impact my taxes much if at all . I understand filing USA and Mexico taxes showing interest income. Unless Mexico taxes my social security ? I am a permanent resident here. I had friends that lost their entire life / retirement savings when the stock market crashed. I am not going that route because I am too old to ever get it back. The official at the bank stated Mexican taxes would be withheld from the interest of the CD. And I believe that as long as I report the interest income on my USA taxes I should be fine? Maybe I am wrong?
When you put your money in the bank (either in a checking account, savings account or CD) you expect to "get your money back" plus interest. The risk of inflation is that when you get your money back, you might not be able to buy as much with it as you could when you deposited it.

Suppose you have an extra 10,000 pesos, and that's enough to pay your rent for 2 months. You deposit that in a 1-year CD at 2%. A year later you get back your 10,000 pesos plus 200 pesos interest. Let's ignore taxes. Suppose, however, that your landlord raises your rent 10% at the end of the year. So now you need 11,000 pesos to pay the rent for 2 months, but you only have 10,200. You're worse off. That's inflation.

It's like Alice in Wonderland:

Alice looked round her in great surprise. "Why, I do believe we've been under this tree the whole time! Everything's just as it was!"
"Of course it is," said the Queen, "what would you have it?"
"Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else—if you ran very fast for a long time, as we've been doing."
"A slow sort of country!" said the Queen, "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"​

If you know your landlord is going to raise your rent by 10% a year, you need an investment that increases your money by 10% just to stay even.
 

·
Registered
Joined
·
279 Posts
Something else touched on in this thread is diversity of your investments. What happens when you have all your money tied up in a US money market account and something happens (which they are already talking about) and they say you can not withdraw your funds due to market volatility (or perhaps without a sizable penalty). I'm not making this scenario up. You need to read the prospectuses they send you.
Every mutual fund in the world (money market, equities, bonds - all) are this way, ie. they generally send your money very quickly if you instruct them to sell, but they all have the right in highly unusual conditions to slow or halt exchange activity. What are the odds? Not win-the-lottery slim, but pretty darn unlikely.

One solution to this is to have money placed with multiple vendors, ie. not all with one bank or mutual fund seller. Ties into your point about diversity. If/when unusual conditions arrive, its unlikely they will all lock down or slow transactions in the same way (*).

Also, don't maintain cash on hand so low that being unable to access your funds for a few weeks will cripple your life. Call it depression era thinking if you like, but I do believe in having currency carefully hidden in a few different places in your home. Not massive amounts, but enough to function for at least a month.

(*) If all the money market funds in the world ever were to simultaneously lock down indefinitely, we'd all be so massively #[email protected]%ed that it would not matter where you have your money.
 

·
Registered
Joined
·
92 Posts
Discussion Starter · #20 ·
I live a simple life social security is my only income , I rent with all utilities included , I have no car and I shop at local markets. How will inflation effect my interest income? I don't think the interest I receive from my savings will impact my taxes much if at all . I understand filing USA and Mexico taxes showing interest income. Unless Mexico taxes my social security ? I am a permanent resident here. I had friends that lost their entire life / retirement savings when the stock market crashed. I am not going that route because I am too old to ever get it back. The official at the bank stated Mexican taxes would be withheld from the interest of the CD. And I believe that as long as I report the interest income on my USA taxes I should be fine? Maybe I am wrong?
When you put your money in the bank (either in a checking account, savings account or CD) you expect to "get your money back" plus interest. The risk of inflation is that when you get your money back, you might not be able to buy as much with it as you could when you deposited it.

Suppose you have an extra 10,000 pesos, and that's enough to pay your rent for 2 months. You deposit that in a 1-year CD at 2%. A year later you get back your 10,000 pesos plus 200 pesos interest. Let's ignore taxes. Suppose, however, that your landlord raises your rent 10% at the end of the year. So now you need 11,000 pesos to pay the rent for 2 months, but you only have 10,200. You're worse off. That's inflation.

It's like Alice in Wonderland:

Alice looked round her in great surprise. "Why, I do believe we've been under this tree the whole time! Everything's just as it was!"
"Of course it is," said the Queen, "what would you have it?"
"Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else?if you ran very fast for a long time, as we've been doing."
"A slow sort of country!" said the Queen, "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"​

If you know your landlord is going to raise your rent by 10% a year, you need an investment that increases your money by 10% just to stay even.
. If my landlord raises my rent by 10 % I move somewhere cheaper, unlike Alice I am not stuck in a rabbit hole. Only someone that eats magic mushrooms and reads Alice in wonderland would buy into a stock market that's at a all time high.
 
1 - 20 of 41 Posts
Top