Over four years ago I arrived from the U.S. on my experimental adventure of retirement living in Ecuador as an expat. I had visited once before and done my hom
ework but, of course, had not completely figured everything out. Some things you just need to discover for yourself once you’re “on the ground.” One important item still to be “figured out” was the whole money, finances, banking, and investing item. How will it work? Will I want to move some portion of my retirement “nest egg,” such as it is, to Ecuador? Here is what I have learned.
Ecuador uses the US Dollar as its official currency, so for expats from the U.S. there is no exchange rate to complicate the issue.
Like most retirees, I have some common sense criteria for managing my finances in retirement that include:
Preserving my money and assets
Earning a return to add to monthly income
Maintaining a level of liquidity for unforeseen issues or emergencies
And like many, I have some concerns about how a correction in the U.S. economy, and the dollar, would affect my longer-term financial outlook. When you are 71 years old the “longer-term” has a very different meaning.
Banking in Ecuador is similar in structure to the USA. There are three defined banking sectors.
And there is an Ecuadorian version of the FDIC (COSEDE) which is a government-operated insurance fund to insure money that you have in financial institutions against loss. COSEDE is the acronym for the COrporación del SEguro de DEpósitos, translated as the Deposit Insurance Corporation of Ecuador, and it has an upper limit of $32,000 per person, per financial sector, that is insured. Similar to the FDIC, financial institutions pay a small percentage of each deposit into COSEDE to fund the insurance pool. The $32,000 limit covered by the COSEDE fund applies to the total of funds owned by an individual in a financial Institution in each financial sector.
As an example, if one wanted to deposit $90,000 in financial institutions in Ecuador and wanted it all covered by COSEDE insurance, that could be accomplished by depositing $30,000 in one institution in each of the three financial sectors. A prudent investor will make certain that all of the financial institutions they choose are approved and authorized for COSEDE coverage of their deposits, and check how much “coverage” they have. The MAXIMUM coverage is $32,000, but smaller institutions may have lower amounts of coverage or, in some cases, NO coverage. EEEK! All of the banks are covered, as are the majority of the larger “cooperativas.” It is easy to check the coverage for yourself on the COSEDE website (https://www.cosede.gob.ec).
A personal note here: Take the time to check the insurance coverage and limits yourself......many banking personnel are not as knowledgeable or as well trained as you may expect! Nor are many expats. And “some” may just tell you what you want to hear.
Here is the good news. The banks (Bancos) in Ecuador pay 3.5 – 5.5% interest on one-year CD’s, and “cooperativas” pay 7.0% - 9.0%. Current comparative rates in the U.S. are 0.6 – 0.7%. My three, one-year CDs in co-ps are currently earning 8.5%, 9.00%, and 9.25%. And even though the standard CD term is one year, many institutions will pay the interest every month if requested. That monthly interest can go right into your savings account and be available to withdraw in cash or via a debit card.
There has never been a failure of any of the banks or of the top ten “cooperativas” in the 55+/- years of their existence. This author has deposits in three “bancos” and three “cooperativas.”
Prior to coming to Ecuador my retirement financial planning was based on averaging a 5% return and I was expecting to devise a diversification plan to shield them from U.S. market declines, etc. But with the funds that I have invested in CDs in Ecuador, my money management has been significantly simplified. I simply put the money in financial institution CDs and receive the interest every month.
How can they pay that much? That question is answered when one understands a little more about the culture, economy, and banking in Ecuador. In this regard, it is somewhat different from North America, and the government and the people use significantly less debt. The poverty rate was down to 21% in 2020 from 35% a decade ago and the national debt of Ecuador is approximately 40% of its Gross Domestic Product (GDP). For comparison, the U.S. national debt is 104% of its GDP and the U.S. poverty rate is about 12%. The year 2021 will likely see an increase in the poverty rate due to the effects of the COVID-19 pandemic. Citizens who are poor have less access to credit, and loans that they do get are at a much higher interest rate, so they are used cautiously. In addition, the Ecuadorian government doesn’t loan cheap money to financial institutions so that they can lend it out at higher rates, as the U.S. does. Many of the funds that financial institutions in Ecuador lend are those that people like me deposit in the institutions. The personal debt delinquency rate in Ecuador is approximately 5.8% vs 2.3% in the USA. These factors result in high-interest rates for borrowers and high-interest returns for depositors.
For this writer, the discovery of these nice returns on insured bank deposits was a pleasant surprise and made my decision to live here look even better. Had I known about it before, it would have been just one more significant factor when I was making the decision.
The 12-hour days all year, the sun and beach, the incredible variety of inexpensive fresh seafood, fruits, and vegetables, and excellent returns on retirement funds …….. and excellent inexpensive golf! Yeah, I‘m happy in Ecuador. C’mon down.
The Author: John Williams has lived near Manta, Ecuador on Santa Marianita Beach, since 2017. Prior to retirement, he resided in Park City, Utah and Mesquite, Nevada where he ended a 40 year Chief Executive career that included CEO level experience at twelve companies in seven Industries. John's formal education was in Accounting and Business Management. He is a freelance contract writer for International Living Magazine, Nevada-Today, Ecuador Insider, Fund Your Life Overseas and other publications.