Earning Interest in Costa Rica

This is another reply to a comment or email that I thought would be of interest to my readers. It concerns money and that should get everybody’s attention. I also get asked this same question though in different forms from a lot of people.

Here is this reader’s exact question:

Where can you earn 10% interest? Please inform me because we have thought about liquidating as well, but I’ve only seen interest rates around 5.5%. What are some alternative investment options available besides CD’s.
Thanks

Before we go any further, it is important to ask the question, “In which currency?” There are two that are used in Costa Rica. The Costa Rica colon is the currency of Costa Rica. Also used is the US dollar.

The colon is a constantly devaluing currency. By this I mean that every single day, the colon is worth less (valued against the US dollar) than the day before. Today, the exchange rate is about 517 colones to the dollar. When I first came to Costa Rica (for good!) it was about 327 colones to the dollar as I recall. Tomorrow it may be worth 518 colones. How can you find out? This info is published by the Central Bank every day.

From this you can see that every day, it costs a tad more (in colones) to buy anything… thus the value of the colon is less (devaluation).

So how much does the colon devalue every year? It varies, but right around 12%. So if you invest in anything using the colon, you “lose” about 12% right out of the gate. For that reason, you will see returns of 18% on such an investment. Is that real? Sure, but you have to subtract the devaluation from that figure. Doing so indicates a real return of about 6%.

This gentleman states he is thinking about liquidating. I have no idea how to respond to such a broad statement, but my gut reaction is that may not be such a hot idea.

Although Costa Rica’s financial issues are well known, the country seems to be getting back on track. However, to liquidate and bring your money here is not such a great idea in my opinion (unless you are Canadian and tired of taking it in the shorts from your government).

While there are some mortgage houses here offering 12-15% interest US, there are restrictions on those invested funds and they are not always liquid (available for your use). Regular investment in CDs or other instruments are NOT insured unless they are placed with a State Bank, and even then, the process of recovery may take years if something bad should happen. I am easily able to get a return in the US stock market (using mutual funds and direct investment) of no less than 15% annually and often a lot more. As I cannot safely duplicate those returns here, even with real estate*, that is where the bulk of my funds are kept. My Costa Rica companies provide my day-to-day living costs so I need not touch that money.

If you are thinking that by bringing your money here and thus escaping the long arm of the tax collector, that would be a mistake. Unless you actually renounce your citizenship (a world class dumbass thing to even consider!), you are still subject to US taxation.

Taxation of US Citizens living abroad is covered here.

Also, the US and Costa Rica are cooperating in a variety of ways as a result of 9-11. Do not think for a minute that your stash is safe from Uncle Sam’s prying eyes.

Your standard Bank CD here is going to get you between 4-5% (US), so take that into consideration when you make your investment plans.

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* To clarify this before everyone starts commenting on CR real estate values. Yes, you can maybe get a more than 15% if you catch correctly maybe a beach property somewhere. Prices for those properties are increasing though I also just heard that areas like Tamarindo are declining in price. Who knows!

Two things to consider. First, you better be right or you are gonna take a bath. Second, there is a ton of fraud going on and as a newbie you can easily get taken to the cleaners either paying too much or getting caught in some legal shenanigans. For the VAST majority of properties here, they are not increasing in value at more than a few percent per year. As there are no tax benefits of home ownership, no substantial increase in value, and properties are ALWAYS easier to buy than to sell, I see no reason to own any real estate here. I rent and unless my new wife really starts pushing for that home in the mountains… I will not be changing.

Please do NOT write to me and tell me about some property that has increased tremendously in value. I know they exist. I am speaking in general terms and not about any one location. Who knows… you could get lucky.