Govt bonds with 22% yearly interest rate

[sonali]

Background is I am from Pakistan and living in Germany. I am looking to park my extra money into ETF or HYSA. Though I don't have experience with any of these previously.

Now, I have come across another instrument called a "naya pakistan certificate" which many banks issue in Pakistan which is probably a government bond? These are available for 3/6/12 months and 2/3/5 year periods. The yearly interest paid is following:
USD (8.5%)
GBP (7.5%)
EUR (6.5%)
PKR (22%)

As you can see the local currency is offered with highest interest but it always carry a risk of devaluation/inflation as happened a year or so ago (example: a car my family bought back home in 2020 is selling for 50% more now ..)Also, if I need money back in Germany, conversion rates might eat up a bit of profit at the end. Or should I just invest in USD or EUR. I can use Revolut to send money in USD so I will get a good rate.

The withholding tax at the end is 10%. There is a tax treaty b/w these two countries. However, I am not sure if I need to pay more tax when i bring back money to DE since here the capitals gains tax is 25%.

Is it even worth investing in this thing considering the risks associated with Pakistan. I have heard similar schemes were offered in Argentina and Lebanon with a not so good result at the end. I also have fear that in the end, Pakistan govt is short of foreign currency and just pays out in local one. Already happened one time back in 1997 I think. Every year or so Pakistan has talks with IMF for loans and there are rumours of default. However, it gets bailed out until now.

It it all even worthy the hassle or I should just park my savings in an ETF like VWCE?

 

[findingoneinus]

@sonali As you conclude yourself, there are risks involved. The interest paid often is a reflection of that risk, as for the issuer of the instrument to attract funds, apparently steep interest payments have to be made. I cannot assess the risk you might be taking, but investing into VWCE is what I do as well — it diversifies your investments into thousands of companies and you would not be dependent on one entity honouring its obligations. Yes, VWCE comes with risks as well, the stock market could (temporarily) tank.

 

[catharinealice91]

@sonali If said government was a company, would you buy their bond?

 

[sonali]

@catharinealice91 Never :/

 

[meshaa]

@sonali Then you have your answer

 

[mspagev]

@sonali no no no no please no.

unless you really hate your money.

 

[bigred60]

@sonali Based on what you said, I don't think there is a need for you to invest in "naya pakistan certificate" as there is a lot of uncertainty in it and at the same time there are a lot of investments in the market that are yielding good returns such as ETFs and HYSAs, and if you're still young you can even invest directly in the shares of some of the large corporates, or even in other options.

I know in Europe people prefer to invest in ETFs, but US invests in ETFs and stocks about average, and younger people prefer to invest in stocks. If you don't want to take any risk, then you can buy only bonds. Relatively speaking.

 

[sonofmatthew]

@bigred60 Do not forget to take into consideration opportunity cost risk.... investing in only bonds expose you to massive opportunity cost risks

 

[jhunnix]

@sonali How would anyone on a Europe related sub answer your question related to Pakistan?

Anywho, I personally have some money in my hbl account back in pak on which I got very decent interest last year, I think between 15 to 20%(don’t exactly remember how much) but I dont have any intentions of investing or saving anymore than what I already have in pak because of all the obvious issues.

 

[sonali]

@jhunnix Right. Though I live in Germany and a have read many people investing in ETFs ( I have mentioned one in my post as well) in these subs and they mostly have HYSA's that have lower interest rates. Just wanted to see what others think.

 

[jhunnix]

@sonali I live in Germany too but I have some savings in my hbl pak account, although I dont add anymore to it because of the unstable situation of pak

 

[sonali]

@jhunnix Understandable. From what people have suggested here, I will not be investing in Pak since I need the money in Euros and in Germany. The situation is also unstable as you said rightly and I want some peace tbh.

 

[bettyraene]

@sonali Given the economic situation of PAK, investing in PKR is not advisable unless in few specific situations. USD/EUR could fluctuate quite significantly (see the chart for the last 5 years) so, if you plan to stay in EU and plan to use the money in EU then its best to keep it in EURO. Irrespective of where the money is invested DE will charge 25% tax (so 10% in PAK and 15% in DE) unless your total capital gains are less than 1000 euro (double that much for married couple).

In DE you could easily get 4% but that interest rate could go down at any time. So if PAK offers 6.5% for 2/3/5 years, its not a bad deal. Few questions for you: will there be no fines for premature withdrawal, is this money meant for emergency corpus or the cash you want to keep on the side, and the premature withdrawal be quick? If yes then go for it. But if its more like investment then go for ETFs like SP500 or Vanguard world.

And dont park all the EURO in PAK because if the country goes bankrupt (which is not unlikely for PAK) you could lose everything. So keep maybe only 50% in PAK.

 

[yahhuah]

@sonali Hello,

I would suggest you to use Trade Republic which is more reliable and also giving 4% interest rate on money deposited with them.

Money deposited with Trade republic are guaranteed by German Govt upto Euro 100,000

Use my code TK6QQ706 to get a welcome bonus of Euro 10 euro

https://ref.trade.re/tk6qq706

Otherwise you can also open another German bank account like C24 which also give more than 3.5% interest in their tagesgeld account.

On top, you will also get debit card which is free of cost along with account itself. It is also safe and guaranteed with German Govt upto Euro 100,000

Simply use my invitation code C24ACBA09F5B7 or register directly via the link: https://s.c24.de/2e5NBvhkfh/

 

[newilya]

@sonali ETFs are much better investments than bonds anyday considering the current market scenario worldwide. If your goal is to invest your money for long term than ETFs are always safer than bonds. Recently, I have attended a webinar with Pensionfriend and I found it very useful to decide about parking my money with low cost and high returns.