Mark on money

Q As the adoption of the euro gets closer, I have been advised to switch my Maltese liri savings account now into a euro equivalent account. I thought that all Maltese liri would be automatically converted into euros on January 1, 2008, and no action was needed now. Is this still the case or should I convert now?

A There is an increasing number of adverts appearing offering bank customers to convert into euro-denominated accounts before the actual adoption date. What these adverts do not mention, however, is that there is a cost to convert into euro now!

I have read more than one article by the Governor of the Central Bank in the press reiterating the need for banking customers not to panic and that there is no need to convert now. Unfortunately, this message is not reaching everyone and instead people are converting into euros now when there is really no need.

The facts are that if one waits until euro adoption date, then there will be no cost of exchanging Maltese liri into euros. It will be automatic, as you say. If one changes into euro now, the bank will naturally charge a fee for doing so.

There are products marketed that are offering quite a good rate of interest in euro but you must compare this with what you can also get in liri. For example, a three-month deposit in euro will pay an interest rate of around 3-3.2% (before the change in base rate on March 8).

The same deposit in liri will give you around 3.3-3.5%. You could therefore get a higher rate of interest if kept in liri, plus avoid the costs of exchange.

There are, as I said, products offering higher rates of interest than above, but these are typically a fixed rate deposit of, say, a one-year duration. Euro interest rates increased to 3.75% on Thursday and are likely to keep rising. I would not suggest one therefore locks capital away for a year at a rate of 3.75-4% as it is likely to be unattractive if interest rates continue to rise.

Finally, if you do not convert your liri into euro by January 1, then you still have three months to do so at the bank. In addition, the Central Bank will continue to exchange notes for one year after adoption date.

So unless you have a specific euro need now, such as a specific investment opportunity - save the cost of exchanging and wait!

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 or e-mail mh@hollingsworth-int.com.

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