When managing assets, investing overseas is a very important option. One of the best ways to increase your US dollars at high interest rates is to make a fixed deposit at a bank in Cambodia.
Cambodia is the only country in Asia where the US dollar is widely available in the market. US bills are the standard currency for shopping, and the Cambodian currency, the Riel, is rarely used. Naturally, deposits in US dollars are also widely accepted.
If you use a Cambodian bank, you can compound your money at a 5% interest rate. Therefore, it is a recommended method when considering asset management.
However, while there are advantages, there are also disadvantages. I have a fixed term deposit with a Cambodian bank, and I do this with an understanding of the risks involved. So, I will explain how you should think about using fixed deposits in Cambodia.
Table of Contents
- 1 High Interest Rates on Fixed Deposits Are Common in Developing Countries
- 2 You Should Understand the Tax System
- 3 You Need to Visit the Country, and You Should Deposit at Least $10,000
- 4 Which Bank Is Better for Opening a Bank Account?
- 5 Cambodian Bank Deposits Are Effective
High Interest Rates on Fixed Deposits Are Common in Developing Countries
In the case of Cambodia, high interest rates can be achieved through fixed term deposits. The interest rate is 5% per year in US dollars.
For example, the following are the general interest rates for fixed deposits offered by banks in Cambodia.
- 1 year term: 5% interest rate
- 3-year term: 6% interest rate
- 5-year term: 6.5% interest rate
This is the interest rate for a fixed deposit in a Cambodian bank. The interest rate on fixed deposits changes from year to year, so please check the rate with a Cambodian bank.
As you can see, it is possible to make a high interest fixed deposit in US dollars in developing countries. Even in developed countries, there was a time when the annual interest rate on deposits was over 8%, and this is the same phenomenon. In other words, there is nothing particularly wrong with such excellent interest rates on fixed term deposits.
Incidentally, one-year fixed deposit is the most common. Of course, if you want to compound your money without withdrawing it, you can set up a 5-year fixed term with the best rate.
Fixed Deposit in Riel Is Not Recommended
One that will give you a higher rate of interest is the Riel, the local currency of Cambodia. However, I do not recommend fixed deposits in Riel.
The currencies of developing countries have significant risks. It is common for the currency to lose a third of its value or less. No matter how good the rate of the fixed deposit is, you may end up losing money, and the risk is very high.
With the U.S. dollar, even though the exchange rate may fluctuate, the value of the U.S. dollar will not suddenly drop by a third or less. For this reason, the only choice for fixed term deposits in Cambodia is in US dollars.
Not Covered by the Deposit Guarantee and Risk of Default
When you make a fixed deposit in Cambodia, if the bank goes bankrupt, you will not get your money back at all.
In many countries, your money is protected up to a certain amount even if the bank fails. In any case, you can get your money back in full up to a certain amount. This is called the deposit payoff system. However, Cambodian banks do not offer such deposit protection. Such default is a risk.
However, while this is a risk, it is not a major risk. This is because when you think about making a fixed deposit in Cambodia, you will be depositing your money in a major bank.
Of course, considering Cambodia as a country, it has a low ranking from rating agencies such as Standard & Poor’s (S&P) and Moody’s.
However, the probability that the country’s major banks will fail is low. It is far more dangerous to put your money in a small regional bank in a developed country.
In other words, when you consider the risk of a bank bankruptcy, it can be said that regional banks in developed countries are more dangerous. From that perspective, although there is no deposit payoff system, there is no need to be so worried about the risk of failure of major banks in Cambodia.
You Should Understand the Tax System
Time deposits in Cambodia may seem like a very good idea, but in Cambodia, you will be taxed on the increase in your fixed deposit. The tax rates are as follows
- Residents of Cambodia: 6% tax rate
- Non-residents of Cambodia: 14% tax rate
There are few foreigners who work in Cambodia, and most of the foreigners who open an account in a Cambodian bank are living outside Cambodia (non-residents of Cambodia). Therefore, the tax rate will be 14%. This means that the interest rate will never be 5%, and when the tax is deducted from the rate, the rate will decrease to about 4.3%.
-There Are also Taxes in Your Country
That’s not all. You have to pay taxes in your own country on the money you make overseas. If you live in a country that has a capital gains tax, you will be imposed taxes even on the money you make abroad.
There is no way to avoid paying taxes, so this is inevitable.
Compared to Other Offshore Investments, the Speed of Asset Management Is Similar or Lower
If you think about the speed of asset management that you can do overseas, a fixed term deposit in Cambodia is similar to other overseas investments.
When it comes to asset management overseas, offshore investments are commonly used. In the case of offshore investment, you can increase your money by investing in tax havens where there is little or no taxation. For example, with offshore life insurance, you can double your money in 20 years and quadruple it in 30 years. In addition, since it is a life insurance policy, if you die, your family will be paid an overwhelmingly high amount of money.
There are also financial products with an annual interest rate of over 10%, and although there are risks involved, an annual interest rate of 10% will result in an increase of 6.7 times in 20 years.
On the other hand, if you have a fixed deposit in Cambodia, the annual interest rate will be about 4.3% after considering the tax in Cambodia, as mentioned above. If you deposit the money for 20 or 30 years, your money will increase as follows.
- Investing 20 years at a 4.3% interest rate: about 2.3 times
- Investing 30 years at a 4.3% interest rate: about 3.5 times
In this regard, there is no such thing as one is better than the other. In fact, I have used both offshore investments and fixed deposits in Cambodia.
In the case of offshore investment, the asset is locked for 15-20 years or so, and there is a high risk of loss of principal if you withdraw your money before maturity. On the other hand, with a bank deposit in Cambodia, although it is impossible to invest in assets with an annual interest rate of 10%, there is no loss of principal no matter when you withdraw your money, and your money will increase by the amount of interest.
In asset management, it is said that it is very dangerous to be biased towards one investment. In my case, I mainly invest in offshore investments, earning an annual interest rate of over 10%, but I also use fixed deposits in Cambodia to diversify my risk.
You Need to Visit the Country, and You Should Deposit at Least $10,000
How do you open a bank account in Cambodia? Anyone can open a bank account in Cambodia. There is no problem, even if you have only a tourist visa.
In general, in most countries, you need to be a resident of the country to open a bank account. In Cambodia, on the other hand, you can open a bank account even if you are a non-resident foreigner.
However, you will need to go to Cambodia to open a bank account. As for me, I actually visited Cambodia to open a bank account, as shown below.
Because of this need to travel, it does not make sense to visit a place to make a fixed deposit of a small amount. The basic idea is to create a fixed deposit of a large amount of money. Specifically, you should consider $10,000 or more.
If you invest at an annual interest rate of 4.3%, $10,000 will become as follows, depending on the number of years you invest.
- 5 years: approximately $12,340
- 10 years: approximately $15,240
- 15 years: approximately $18,800
- 20 years: approximately $23,210
With 5 years of investment, you will not make nearly as much money considering the round-trip transportation costs. If it is 10 years, you will make more money. If you invest for another 15 or 20 years, you will finally see a reasonable effect.
Of course, the higher the amount of money you invest, the faster your money will grow. In any case, when you think about it this way, it only makes sense to invest at least $10,000 or more.
Avoiding the Risk of Bank Account Freezing
If you want to make a fixed deposit at a Cambodian bank, you will have to open a savings account first, but you should understand that there is a freeze risk on savings accounts. Specifically, if there is no activity on your deposit for one year, it will be frozen.
When making a fixed deposit, think of it as needing to open two accounts, a savings account and a fixed term deposit.
However, since you will open a Cambodian bank account for fixed deposits, you will not use your savings account. In such a case, how can you avoid freezing your account?
For this, you can use a fixed deposit that pays interest monthly. No matter which bank you choose, you will have to make an initial deposit of $500 or so. This is the minimum deposit amount to open a fixed deposit account.
For this $500, you should choose a fixed deposit that pays interest to your savings account every month. The interest will be paid to your savings account, and this will keep your savings account active. In this way, you can avoid the risk of your account being frozen.
After that, you will send the money from your country to the Cambodian bank where you have opened the account, and make a fixed deposit with this money to start asset management. The interest on the fixed deposit at this time should not be transferred to your savings account in monthly distributions, but rather you should make it so that the money will grow at compound interest by having the interest paid into your fixed deposit account.
Which Bank Is Better for Opening a Bank Account?
So, which bank is the best to open a bank account in Cambodia? There are a number of banks in Cambodia.
The following banks are the candidates.
- Canadia Bank
- Acleda Bank
- ABA Bank
All of us will eventually reach these banks when we think about making a fixed deposit with a bank in Cambodia. So, I will explain them as they are, including their advantages and disadvantages.
When opening a bank account in Cambodia, Canadia Bank is an option. When you open a bank account with Canadia Bank, you will have to go to their head office called Canadia Tower.
Canadia Bank is a huge bank, and the stability of the bank is excellent. Therefore, you should consider opening an account with Canadia Bank.
Acleda Bank is the largest bank in Cambodia.
If you want to open a bank account with Acleda Bank, you will have to go to the head office of Acleda Bank.
ABA Bank is one of the most reputable banks for Cambodians to bank with. This is because it is very easy to use and has an app.
However, when foreigners think about making a fixed deposit, they should not open an account at ABA Bank. This is because of the low rate of interest on fixed deposits. This is fatal, and the reason why opening an account with ABA Bank is not recommended at all. The rate is very low, as shown below.
If you are working locally in Cambodia, it is significant to use ABA Bank for a savings account. However, there is no point in using ABA Bank for fixed deposits because the rate is low.
Cambodian Bank Deposits Are Effective
Fixed term deposits in Cambodian banks are a good way to invest in US dollars at an annual interest rate of about 5%. Among the investment methods, it is recommended because you will not lose money like stocks or real estate.
Of course, there are some disadvantages as well as advantages. You need to travel to Cambodia and deposit at least $10,000 or more. This is because you will need to travel to Cambodia at least twice, once to open an account and once to send the increased amount of money to your home country bank.
Considering the cost of transportation, you will need to invest a certain amount of money. After you understand the precautions and the process of opening an account so far, you should open a bank account in Cambodia.