Wednesday, March 20, 2013

Taxing Savings Deposits in Cyprus

The latest news out of the Eurozone since Saturday is that all deposits in Cyprus are going to be taxed at 6.75% for under €100k and 9.9% for over €100k. This has happened before, but at rates around one percent or less. This is big news and trouble... for everyone.

In the United States the FDIC insures savings accounts up to $250k. That means even if your bank goes bankrupt, the first quarter million in your savings account (seriously, who has that kind of cash?) will still be yours. What just happened in Cyprus is that all of those insured people just found out that they were about to pay a tax on their savings. It's like being only 93% insured. If it happened there it could happen here.

In a larger context this is a wealth tax, which is not necessarily a bad thing. In other words it affects the rich more than the poor. However, as with every other event in the Euro crisis, things are changing daily, and deposits with under 26k Euros look to be exempt. In short, who knows what will actually happen?

Regardless, it is interesting. This is yet another example of financial instability in the world. In slightly related news, a dollar saved is not a dollar earned, because $1 today will not buy what $1 in five years will buy. If you would like to listen to a debate about a strong versus weak dollar NPR had a good one.

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