EUR-CHF.... converting or other options?

Hi everyone,

My wife will likely receive a gift from her parents, in EUR currency.
I checked if there are possible taxes to be paid, and it seems this is not the case (majority of Cantons, if parents donate to children without need to pay sort of tax).

The main question we have, if about the convertion itself: at this moment, selling EUR to purchase CHF is not favorable, therefore wondering if we should keep the currency and after the bank transfer, to invest the amount directly in EUR (not even sure if that’s possible).
Keeping the amount sleeping into a EUR bank account with a near-to-zero interest rate, is obviously a no-go.

My wife is concerned about the convertion rate which is not favorable in this scenario.
Another option she was thinking about was to ask her parents to keep the amount on their bank account and select a possible investment solution, in case (theoritical) in the future she might want to use this amount for a (little) real estate investement abroad.
Since this is just theoritical and in case of a transfer, the topic of the convertion rate will be always there (favorable and not favorable thus), I tend to suggest the option to receive the amount and check the possibilities.

What would you suggest?
THank you in advance

Best,
Cap

at this moment, selling EUR to purchase CHF is not favorable
…
My wife is concerned about the convertion rate which is not favorable in this scenario.

What do you mean by this? That the currency conversion fees are too high? Or the exchange rate is too low, and you expect it to get better later?

If it’s the latter, you need to recognize that you’d just be engaging in FX speculation, betting that the EUR will strengthen. Is that really what you’re intending to do? If you (or rather, your wife) really believed in this, you should be converting all your CHF to EUR. Which you obviously aren’t going to do :slight_smile:

If it’s the former, then find a provider with lower fees. It can even be as low as no fees. (E.g. IB will happily take EUR transfers for no fee, and then allow making a currency conversion at very low commissions and the mid-market rate. Wise has at least historically had much lower fees / tighter spread than banks). Waiting will not make any difference. Eventually you’ll want CHF rather than EUR, and at that point you’ll need to pay the fees anyway.

Of course it is possible, depending on your broker.

But that means that you’ll have replaced the EUR with other EUR-denominated assets. Their dividend/interest yield will be in EUR, and once you sell the assets you’ll again have EUR that you’ll need to convert to CHF. If currency conversion is a problem now, this doesn’t actually solve the problem but just kicks the can down the road.

(Though again, currency conversion shouldn’t be a problem now or later, so investing in EUR should be just fine if you can conveniently do it.)

To be blunt, this sounds like a totally insane plan, that’ll cause you no end of grief with wealth tax, gift taxes, and with the estate. Doesn’t your wife at least have an account in her home country?

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Just guessing that your wife’s parents live outside of Switzerland, in which case taxation of the gift depends on the rules of her parents country, not Swiss rules, and, if applicable, have to be paid to that country.

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What does she/do you intend to do with the money?

If it’s going to be invested in fixed income, then currency matters: the question is what currency do you want exposure to/in what currency/ies your future liabilities will be.

If it’s going to be invested in something else, then the currency doesn’t matter: the value of the asset is in the asset itself and should be mostly agnostic of forex fluctuations. What matters then would be the exchange fees (that is, if she/you’d be buying a productive asset, say stocks with a dividend that would get paid in the original currency that you would have to convert at a later point).

What I would do:

This topic probably has some emotions baked in it. I would:

  1. Try to convince my wife that keeping the money with her parents creates a hassle for them which they should be spared. They have the kindness to gift her this money, she should have the kindness to make it as seamless as possible for them.

  2. Discuss with her what should be done with it. If it’s used:

  • for immediate consumption, then currency doesn’t matter. Let her do whatever she wants with it (or discuss it as per your habits as a couple).

  • to invest in equities: since the currency doesn’t matter, find an accumulative global fund denominated in EUR and invest in it through your usual broker (provided they provide multi-currency accounts). No forex conversion, no dividends paid out. You can reassess the situation with her in some time, check how it would have fared in both currencies and adjust your policy if her feeling about not converting it now doesn’t apply anymore.

  • to invest in fixed income (including on a savings account): have a long, hard discussion about what currency the money will be spent in. If part of your expenses are or will be in EUR, then it can stay in EUR and cover them. Either buy EUR denominated bonds/bond fund through your usual broker or open an EUR savings account with a bank of your choice. If your future exenses won’t be in EUR, I would convert them immediately as I don’t know how the exchange rate between EUR and CHF will evolve in the future.

  • to invest in anything else: the part about equities should apply. If real estate in a foreign country is considered, special thoughts should be given to how the liabilities that come with it should be covered and where the proceeds of the rent would go. She/you’d probably need to open a bank relationship in the country of the asset, though other options may exist.

Edit:
About selling EUR to buy CHF not being favorable, this is the evolution of the exchange rate since 2003:

It is not predictive but the trend seems to go down to me. If it keeps doing so, now may be the best time you’ll have to convert EUR to CHF. If she’d rather have a theoretical than a graphical explanation, look at interest rate parity: the higher interest rates one can have in EUR vs CHF means the EUR should weaken vs the CHF in the future so that investors in both currencies are made whole (have the same returns for the same amount of risk). It works because big international institutional investors will track the best bonds for the amount of risk they’re willing to take. They’ll buy EUR denominated bonds if they seem to provide the best risk adjusted returns and they’ll buy CHF bonds if they are the ones seeming to provide the best risk adjusted returns until the risk adjusted returns of both assets are in alignment.

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Given you’re Italian (and may use EUR in the future) why not invest it in an EUR-denominated ETF and leave it there?

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You really have 3 options (okay, maybe 4):

  • Leave it in EUR. Or convert into any other other non-CHF currency. This implies an investment in some kind of fixed income product, even if it is just a cash account:

With the center of life in Switzerland and higher nominal interest, which is taxable, not recommended. The argument that EURCHF exchange rate is not good now we have heard for many years.

And here we have spelled out some considerations:

  • You convert it to CHF and invest in some kind of fixed income product:

Very safe short term, losing value long-term. At this point, it’s a matter of portfolio construction, not of currency exchange.

Pro tip: if you have mortgage, tell everyone that you will use these money (after conversion) to repay it. This is an understandable and very socially acceptable way of using gift from parents, will make everyone happy. Until then, use fixed income with a corresponding duration and risk profile.

  • Invest into VT/VWRL/BTC/gold/… - anything that is NOT fixed income in the specific currency. In this case, you have an exposure to the respective asset, not the currency it is listed in, don’t fool yourself.

  • Invest in a real estate abroad: a very specific type of investment in itself.

And the mix of all above.

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She could open an account in an Italian broker account and invest it in an eur etf such as VEUR , Vanguard FTSE Developed Europe UCITS ETF EUR D. You will consume the dividends on holidays trip.

In a successoral point of view, it may make sense to accept this donation and not leave it to her parents.
Anticipated donation, could lower later inheritance tax. In France, each parent could donate 31k to every child every 15 years.

You could checkout Italian donation rules.

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Hi Jes, thank you for your inputs.

By convertion rate not favorable, I mean the higher price to purchase CHF compared to the recent past (just 6-month ago, the ratio was almost 1:1, now it is 1:0.94). To convert 10K (just quick sample), difference is 600 CHF less in the pocket.
My simple thought, was to eventually wait and monitor when the exchange rate could raise a bit, in order to get a more favorable situation.
Agree with you that investing now in the EUR currency won’t solve the problem but only move it somewhere in the future: sooner or later, the convertion may be required.

About the option to keep the amount in the bank account of her parents, it was just an idea, but I tend to discourage that due to the correct reasons you just mentioned.

Hi Moustachienne, thanks for your feedback.

Yes, they are. We checked also this part: there is a cap (about 1 Mio) where there are no taxes for the donor. And unfortunately, the amount is not ever closer to the smallest fraction of that :smiley: :smiley:

As others already mentioned, this seems like endowment effect (Endowment effect - Wikipedia) or sunk cost fallacy (Sunk cost - Wikipedia).

To make a rational decision, one way is to flip things around. If you were given the equivalent sum in CHF at today’s rate, would you go and convert to EUR to bet on the exchange rate before converting back?

(I assume not, and if you do, there are more efficient ways to bet on FX movements)

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Hi Wolverine, thank you so much for your feedback.

We would like to invest these money, and since our level of financial education is very basic (if not even very low), in the past years (due to several reasons) we could not properly invest the savings but rather use simply vectors, like 3A or stock (buy and forget).

My wife has her family-origin mentality where investing on real estate (purchase with min amount of cash, rest loan and then hoping the tenant will pay-back regularly) or having some bonds (in italy, called BTP), is the best and more secure way to invest.
For that reason, her idea was to keep this amount in EUR and in Italy to let her parents to buy a BTP for our children as a gift (example today, 10K EUR, in 2039 will be 18K CHF - after IT tax -and possibly also here - not sure about that, I do not exclude some implications).
I do believe, that a simple investement in 99% stock can give the same results (if not even higher) and in case of emergency I can withdraw the money immediately (which it is possible also for the BTP, but in that case the rate would be drastically cut).
About the real-estate, I am also not in very favour of that, as we both have already one property each (inherited by parents) and in the future she will get further ones which - IMHP - won’t be even fruitful to have as tax will be required and possibiliy to sell or rent is extremely low due to the location they are in.

In regard to your suggestions, these are very useful and bring several focus points.

  1. Actually, her parents are also in favor to keep the money in their account :slight_smile: as, you know, things can change in the future… this is one of the reason I am suggesting to accept the gift now and move it to her account (she already have a EUR saving account here).
  2. She would like to invest. Period :slight_smile: if this is an italian bond, purchase of apartment in Italy or different scenario, she does not want to keep the money sitting into the savings account - and I could not agree more with thaf of course. About the graph you shown, it is very indicative to me about the possible trend. I wlil discuss that with her and see what does the see that too.

The suggestion I would like to give her, is to go ahead with the converting 60% of the amount and invest it in stock. The remaining 40%, to keep it in EUR and - if this is helping there to relax her opinion about having still EUR currency at hand - and ask her parents to go with the Italian BTP for our kids.

Hi Dr. Pi, thanks for your inputs.

So recap, opt. 1 (leaving in EUR) you would not recomment, right?
About the opt.2, yes we have a mortgage which duration will be renegotiated in 2026. It would be also good time to put the money there to repay, but if rate will be (as I hope) lower compared to the last 2 years, would it make sense to use the money to repay?
Opt. 3, Gold is another option. BUt I would prefer the physical gold which means conversion to CHF will be still required as I would purchase it here.
opt. 4 this has been already evaluated and I’m not very in favor of that at this very moment.

Hi FunnyDjo, thanks for your reply.

Italian donation rules alredy checked and no implication with taxes for her parents.
Why opening an italian broker, if we might do the same with the current broker in CH?

thank you for sharing the links - very useful and both give an interesting external point of view. Really appreciated

The trend is clear. Better convert to CHF before it continues further down… :wink:

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