What is the best savings plan?

Ok, at a point in the relative future I expect to be able to sock about 500 pounds a month back for the future. I could open a Roth in the USA (possibly) with my current retirement plan company. Or I could put it into some form of account here in the UK.  My preference  would to have it be here in the UK, if possible. 

Aside from the savings account associated with my checking account, is there any kind of savings plan that would safeguard my money and not have me running afoul of any weird IRS regulations?  I want to save this up for, potentially, giving to the Daughter to put towards buying a home someday and I do not want to have to lock horns with either the IRS or HMRC over the money.

Short answer - save in a UK savings account (fixed term or variable), or a cash ISA, all at miserable rates of return. End of story.

Longer answer - become a property tycoon or invest in individual UK stocks, not pooled funds, on your own, and become a market wizard.

Great being an American abroad, isn't it.

 

I doubt very much that you have the option of opening a Roth while living overseas. TheOAP is correct in your options. As a USC you can’t even buy high growth or income bonds from NS&I. Martin Lewis has a good website for looking at which savings accounts have the best rates. The first year we were here, 2016, we transferred loads of money to the UK because the exchange rates were very favorable and we knew that we were going to be buying a house. I scattered the money across various savings accounts in mine and my wife’s name then come FBAR and FATCA time it was a real pain reporting on all those accounts.

We are in drawdown mode at present so don’t have excess income to “worry” about but if we did then I would put it in our US brokerage account that we retained when we moved back.

Yeah, savings in the UK for USC don't really get much opportunity to grow.  I'm getting 2% on a Monthly Saver account through Lloyds (£250/month maximum deposit), and 2.96% on an ISA (£200/month maximum deposit).  At my income/asset level, I don't see much better than that out there at the moment.

The problem is my Monthly Saver is about to hit its 1 year anniversary, and revert to an "Easy Saver" account at 0.20%... I'll have to do some research to find where to move my savings to.  Er, I mean, the savings left over after paying Home Office the bulk of it. 

It's really frustrating.  I swear I remember ridiculously high savings rates when I was a child, but that old mantra of "set aside just x dollars a month, at a modest return of 6%..." seems like a pipe dream.

Yeah, savings in the UK for USC don't really get much opportunity to grow.  I'm getting 2% on a Monthly Saver account through Lloyds (£250/month maximum deposit), and 2.96% on an ISA (£200/month maximum deposit).  At my income/asset level, I don't see much better than that out there at the moment.

The problem is my Monthly Saver is about to hit its 1 year anniversary, and revert to an "Easy Saver" account at 0.20%... I'll have to do some research to find where to move my savings to.  Er, I mean, the savings left over after paying Home Office the bulk of it. 

The problem with the monthly savers is that by the time you average out over the year, the rate of interest works out to be only about half of the advertised rate because you only have the full amount in the account for that last month, so often your money is better elsewhere.

Apparently, it's [the Roth] a moot point for me. Unless I happen to find a job and then don't use the earned income disregard. Perhaps I'll look at US savings bonds next.

"Roth IRAs are a retirement savings vehicle that allows people to stash away $5,500 per year, or $6,500 per year if over age 50, in after-tax money that can grow and be withdrawn tax free. But only people with earned income can contribute to a Roth IRA. So if you -- or your spouse -- aren't still working at least part-time, then you won't be able to contribute to a Roth IRA. Social Security income, pension income, and investment income don't count as earned"

At this point, I think we are just going to put extra money into 1 year fixed rate places. It doesn't look like we will need our money to make more money (meaning above rate of inflation).....but hopefully get close enough to making enough money to keep semi-up with inflation. We went through the Martin Lewis site https://www.moneysavingexpert.com and near the end of Feb put £100K into Investec getting 1.9% for the year (down to 1.85% at this time). I'm still keeping quite a bit of money in our savings at Lloyds for another 2 years until I get ILR. At that point I will likely move almost all of our money into a series of 1 year fixed rates at several sites.

Apparently, it's [the Roth] a moot point for me. Unless I happen to find a job and then don't use the earned income disregard. Perhaps I'll look at US savings bonds next.

"Roth IRAs are a retirement savings vehicle that allows people to stash away $5,500 per year, or $6,500 per year if over age 50, in after-tax money that can grow and be withdrawn tax free. But only people with earned income can contribute to a Roth IRA. So if you -- or your spouse -- aren't still working at least part-time, then you won't be able to contribute to a Roth IRA. Social Security income, pension income, and investment income don't count as earned"

I'm not sure if earning money in the UK will count for Roth eligibility as you will probably exclude all that income when filing a US tax return plus I would expect the IRS to cross-check that you are paying US payroll taxes (FICA aka SS and Medicare taxes) on that earned income.

I used to like US Treasury I-Bonds. Very easy to buy and sell online. I've looked through the T&C's and don't see any restrictions on overseas investors.  Guaranteed to keep up with US inflation, rates change every 6 months from the date you buy a bond.  Current rate is 2.58% The interest accumulates tax deferred until you cash them out.

https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm


What interest will I get if I buy an I bond now?
The composite rate for I bonds issued from November 1, 2017 through April 30, 2018, is 2.58%. This rate applies for the first six months you own the bond.

How do I bonds earn interest?
An I bond earns interest monthly from the first day of the month in the issue date. The interest accrues (is added to the bond) for up to 30 years.

The interest is compounded semiannually. Every six months from the bond's issue date, all interest the bond has earned in previous months is in the bond's new principal value. Interest is earned on the new principal for the next six months. For example, in month seven, interest is earned on the original price plus six months of interest. In month 13, interest is earned on the original price plus 12 months of interest. (However, values displayed by the Savings Bond Calculator for bonds that are less than five years old do not include the latest three months of interest. These values reflect the interest penalty.) If you hold the bond for at least five years, when you cash in (redeem) the bond, you receive all the interest the bond has earned plus the amount you paid for the bond.
You can redeem the bond after 12 months. However, if you redeem the bond before it is five years old, you lose the last three months of interest.
How does Treasury figure the I bond interest rate?
The interest on I bonds is a combination of

a fixed rate, and
an inflation rate
To see the current value of your bonds, use the Savings Bond Calculator. When using the Savings Bond Calculator to look up values of bonds that are less than 5 years old, keep in mind that the values of those bonds do not include the latest three months of interest. However, rates shown by the Savings Bond Calculator for those bonds do not reflect that interest penalty.

Hmmm, those look interesting!

Yes, if I worked here I'd have to forego the earned income exclusion.... and it's unlikely I'll be working, so I'm going to be investigating other options.  Apparently you can get US Savings Bonds via your IRS tax refunds, which is convenient.

Hmmm, those look interesting!

Yes, if I worked here I'd have to forego the earned income exclusion.... and it's unlikely I'll be working, so I'm going to be investigating other options.  Apparently you can get US Savings Bonds via your IRS tax refunds, which is convenient.

You can indeed purchase paper bonds with your IRS refund which may be challenging to cash in when you are ready. Back in the day I converted a load of paper bonds to electronic and it was a real pain, and that was while I was living in the USA. It may be easier these days.

https://www.irs.gov/refunds/now-you-can-buy-us-series-i-savings-bonds-for-anyone-with-your-tax-refund

Register Paper bonds in your name or someone else
When you purchase savings bonds with your tax refund, you will receive paper bonds, issued in your name or the names you designate as primary owner, co-owner or beneficiary. You can request up to three different savings bond registrations – for yourself and spouse, if married and filing a joint return, or someone other than yourself. If you order bonds for yourself and spouse, the bonds will be issued in the names shown on the return.

The problem with the monthly savers is that by the time you average out over the year, the rate of interest works out to be only about half of the advertised rate because you only have the full amount in the account for that last month, so often your money is better elsewhere.

Yeah, I know.  It's really annoying.  I assume the opening deposit is limited to the same as one month's deposit, so I can't just move the old account into a new Monthly Savers?

When I opened the Monthly Saver, it was a new savings plan (accelerated savings for ILR because I was not on track to have enough saved otherwise!)... but now I have a balance, and I need a place to move it to when this one matures in two weeks' time.

Yeah, I know.  It's really annoying.  I assume the opening deposit is limited to the same as one month's deposit, so I can't just move the old account into a new Monthly Savers?

When I opened the Monthly Saver, it was a new savings plan (accelerated savings for ILR because I was not on track to have enough saved otherwise!)... but now I have a balance, and I need a place to move it to when this one matures in two weeks' time.

Make sure that if you're in a UK interest earning savings account you consider the US tax you'll be paying on it. They don't recognise ISA's in the tax treaty

I've looked through the T&C's and don't see any restrictions on overseas investors.

I'll preface this post by saying 2.58% is much, much better than 0.20%, so don't take my comments in the wrong way.

Since the US is attempting to replace Switzerland as the worlds largest tax haven, there may well be no restrictions on residence or nationality. But it would be worth attempting to register online to find out 2 things: first, do you require a US address, and second, do you require a US bank account.

As for the 2.58% return, some thoughts:

I'm not sure of the implications for HMRC reporting (when to declare profits or do they qualify for a UK tax free amount). If tax is due in the UK, and offsetting any US tax paid, for those in the 40% UK bracket especially the after tax profit won't match what one would receive in the US. Still, ~2.58% is better than 0.20%.

Many US expats in the UK do not have a US address or US bank account. They may prefer to have their assets in the UK since they live here, pay bills here, buy things here, give gifts here, or plan for leaving inheritances to those who live here. Investing in anything in the US carries a degree of uncertainty for them. The original funds will be in £s, and it will need to be sent to the US dependant on exchange rates. Growth is constant in the US, but always varies when compared to £s. If the funds are to end up back in the UK, then there is the exchange rate influence on what the funds are worth at that time plus transfer back to £s. IF the intention is to have the funds and profits to forever more stay in the US (moving back, inheritance, gifts to the US, etc.), than this may be an interesting plan, but for those who intend to live forever more in the UK with no need for funds in the US, some considerations may be required. ~STILL, 2.58% is better than 0.20% and exchange rates can go down as well as up.

Just to add:
As pointed out above, there are UK accounts which pay much more than 0.20%, so the decision as to where the funds are versus a 0.75% gain in interest rate versus varying exchange rates may need thought. Is it worth it? (it may well be worth it for some) 

I'll preface this post by saying 2.58% is much, much better than 0.20%, so don't take my comments in the wrong way.

Since the US is attempting to replace Switzerland as the worlds largest tax haven, there may well be no restrictions on residence or nationality. But it would be worth attempting to register online to find out 2 things: first, do you require a US address, and second, do you require a US bank account.

As for the 2.58% return, some thoughts:

I'm not sure of the implications for HMRC reporting (when to declare profits or do they qualify for a UK tax free amount). If tax is due in the UK, and offsetting any US tax paid, for those in the 40% UK bracket especially the after tax profit won't match what one would receive in the US. Still, ~2.58% is better than 0.20%.

Many US expats in the UK do not have a US address or US bank account. They may prefer to have their assets in the UK since they live here, pay bills here, buy things here, give gifts here, or plan for leaving inheritances to those who live here. Investing in anything in the US carries a degree of uncertainty for them. The original funds will be in £s, and it will need to be sent to the US dependant on exchange rates. Growth is constant in the US, but always varies when compared to £s. If the funds are to end up back in the UK, then there is the exchange rate influence on what the funds are worth at that time plus transfer back to £s. IF the intention is to have the funds and profits to forever more stay in the US (moving back, inheritance, gifts to the US, etc.), than this may be an interesting plan, but for those who intend to live forever more in the UK with no need for funds in the US, some considerations may be required. ~STILL, 2.58% is better than 0.20% and exchange rates can go down as well as up.

Just to add:
As pointed out above, there are UK accounts which pay much more than 0.20%, so the decision as to where the funds are versus a 0.75% gain in interest rate versus varying exchange rates may need thought. Is it worth it? (it may well be worth it for some)

This is why I have stuck to putting money in the 1 year fixed rates here in the UK...at least unless I find something better. This is where I want my money to be. I don't think I'm even getting .2% out of Lloyds, which is why as soon as I complete ILR in 2 years I will pull pretty well all of our money out of Lloyds and just keep it as a bank for incoming pension/social security and then transfer it elsewhere. The Martin Lewis site has savings accounts for 1.3% I think last time I looked. Hopefully if they raise rates next month the savings rates and fixed rates may creep up a little more.

After all the damn rain.....I'm starting to wonder if we could afford a little apartment in Spain or something. It's really getting old.........

Hmmm. Well, my extra 500 pounds (hypothetically) is actually going to be in dollars. To a USA bank account. So I'll probably look into some of the online Savings Bonds or Treasury Bonds for a while. The purpose of the exercise is to try to keep the value of the dollars ahead of what inflation will do to them, really.