Making the most of your money as an expat

Competitive salaries, low tax rates and a reasonable cost of living make Korea a popular choice for expatriates wanting to save money.

For many, that means hoarding cash in a current account where rising prices eat into its value over time. But there are ways to see a return on your money.

“The first thing I always tell customers is not to keep your money in your regular kind of checking account because you are earning really low interest rate there,” says Michelle Farnsworth, Foreign Client Relationship Manager at Shinhan Bank Seoul Global Center, the only bank branch in Korea exclusively for expats.

What you do with your money then will largely depend on how much risk you can afford.

For those who can’t afford to lose money, Farnsworth recommends a time deposit, which offers an interest rate dependent on a specified period.

“Depending on how long you keep your money invested in that ― you have 3-month, 6-month, 9-month or 1-year, 3-year or 5-year ― then the higher the interest rate could go. And right now if you keep your lump sum deposited in a time deposit (at Shinhan) for one year the interest is approximately 4 percent, which is pretty high considering that in the U.S. you would only be earning about 1 percent on a 1 year time deposit,” says Farnsworth.

Installment accounts are another option. With an installment account, the account holder makes set monthly deposits (or can choose to freely deposit) for a specified annual interest rate.

“These (time deposits and installment accounts) are really low risk because they are in your bank and they are KDIC (Korea Deposit Insurance Corporation) insured. Up to 50 million per person per bank is insured.”

Stocks and funds

Expats can also seek returns on their money at securities firms, which act as middlemen between buyer and seller in the stock market. Investing in the stock market is not without risk, but the bigger the risk the bigger the potential reward.

Korea has two stock exchanges, the KOSPI and KOSDAQ, the latter being the more volatile and IT-focused of the two.

While both banks and securities companies allow you to invest in the stock market, only the latter allows investment in individual stocks, which are riskier but also potentially more lucrative.

With commission starting at 0.1 percent, securities firms produce daily reports for their customers on the condition of the companies they have invested in. Banks, on the other hand, only handle investments in funds, which carry less risk as the investment is spread across a range of companies. Funds are still considered high-risk as it is possible to lose your entire investment. Securities firms, like banks, also offer risk-free opportunities such as cash management accounts, which offer a fixed interest rate.

Foreign nationals can open a trading account at a local securities firm for free on providing their Alien Registration Card.

Alex Choi, a broker at Daewoo Securities, specializes in foreign clients and is one of the few brokers to provide services in English.

What are the options for someone willing to take some risk with a certain amount of money every month?

“I’d recommend a monthly automatic investment program. Every month on a set date, 1 million won (for example) is withdrawn from a client’s account in the bank and transferred into the monthly investment program account so it will be automatically invested in a portfolio of Korean companies. And our clients can select the program they like,” says Choi.

Daewoo Securities’ monthly investment program requires a minimum monthly investment of 100,000 won. An investment program can see high returns but also carries the risk of losses.

For stock market novices with cash to burn, a securities firm can do some of the legwork for the client.

“If they have more than 30 million Korean won, if they don’t know how to pick stocks and they don’t know much about Korean industry and companies. In that case, we have some managed accounts. Professional investment advisors select the number of companies and manage the account on behalf of the clients,” says Choi.

But Choi and Farnsworth both stress that investors should be aware of the market to know when to buy and sell and minimize their losses.

Choi says the stock market is becoming more accessible, with securities reaching out to new foreign clients more than ever. In July, Daewoo Securities is launching a new English-language online trading platform.

And with the Korean economy in good shape relative to many developed countries, there are plenty of reasons to keep your money here rather than sending it home.

“I think the Korean won may appreciate against foreign currencies. In that case it is more profitable to maintain Korea won here rather converting it to foreign currencies and transferring it to their home country. And also, the level of interest is higher than other advanced countries in Korea,” says Choi.

As for pitfalls, both Choi and Farnsworth say you should avoid putting all your eggs in one basket.

“Diversification is important,” says Farnsworth.

“Don’t put all your money into one stock or even one fund. Keep some in a time deposit, put some in a fund, put some in different countries, different industries.”

By John Power (john.power@heraldcorp.com)

• Daewoo Securities’ wealth management center in Yoksamyok, Seoul, gives English seminars on financial products available to foreigners Korea. Alex Choi can be contacted at kyungsuk.choi@dwsec.com or (02) 568-4488.

• Michelle Farnsworth can be contacted at farnsworth@shinhan.com or 02-773-3163.