Colones or dollars? When each makes sense
Learn when it's better to save in colones vs. dollars based on your financial goals and economic context.
Costa Rica's bimonetary reality
Costa Rica is one of the most dollarized countries in Latin America. Salaries can be paid in colones or dollars, rent is frequently quoted in dollars, and many loans (mortgages, vehicles) are offered in both currencies.
This coexistence of two currencies creates a constant question: should I keep my money in colones or dollars?
The answer depends on your particular situation, but there are clear principles to help you decide.
When colones make sense
Your expenses are in colones
The most basic rule: if your main expenses (groceries, utilities, transportation) are in colones, keeping your money in colones avoids the cost of converting back and forth. Each conversion has a cost (the spread), which can add up quickly.
Interest rates in colones are higher
The BCCR sets the Monetary Policy Rate (TPM), which influences interest rates on colon savings. Historically, certificates of deposit and savings accounts in colones have offered higher rates than those in dollars, partially compensating for devaluation.
If the TPM is significantly higher than dollar rates, colon savings can yield more — as long as the colon doesn't devalue at a rate greater than the interest rate difference.
The colon is stable or appreciating
During periods when the colon holds steady against the dollar, there's no advantage in dollarizing your savings. On the contrary, if the colon appreciates (exchange rate drops), those holding dollars lose purchasing power in colones.
When dollars make sense
You have dollar-denominated obligations
If you pay rent, mortgage, or credit card in dollars, maintaining savings in dollars eliminates the risk that a colon devaluation makes your payments more expensive. This is known as currency matching: ensuring your income and debts are in the same currency.
You travel frequently or shop internationally
If you travel abroad regularly or shop online at international sites, having dollars available saves you from converting every time you need to make a payment.
You want protection against devaluation
The dollar, as the world's reserve currency, tends to hold its value during periods of uncertainty. If you're concerned about potential colon devaluation, diversifying part of your savings into dollars acts as insurance.
The currency mismatch risk
The most costly mistake is having a mismatch: earning in one currency and owing in another. For example:
- Income in colones + debt in dollars: If the dollar rises, your debt becomes more expensive in colon terms while your income stays the same
- Income in dollars + expenses in colones: If the dollar falls, your purchasing power decreases
This mismatch is especially dangerous for long-term loans like mortgages.
The frequent conversion trap
Every time you convert colones to dollars or vice versa, you pay the spread. If a bank has a spread of ₡14, converting $1,000 costs you approximately ₡14,000 in each direction. Converting round-trip costs you ₡28,000.
Those who convert frequently "trying to profit from exchange rate movements" generally lose more in spreads than they gain from market fluctuations.
Practical decision framework
| Time Horizon | Recommendation |
|---|---|
| Monthly expenses | Keep in the currency you pay your bills in |
| Short-term savings (1-2 years) | Match the currency of your next large expense |
| Long-term savings (5+ years) | Diversify: part in colones (better rates), part in dollars (protection) |
| Emergency fund | In the currency of your daily expenses |
Practical tip
Don't try to predict the exchange rate in the short term — even economists can't do it consistently. Instead, focus on currency matching: aligning the currency of your savings with the currency of your obligations.
On ARiSabe, you can use the historical chart to observe exchange rate trends and make informed decisions about when to convert, without reacting impulsively to short-term movements.