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Everything you need to know about Foreign Currency Accounts

Doing business in different countries can be daunting especially when exchanging and making transactions with multiple currencies. However, a foreign currency account (FCA) can help in mitigating the challenges encountered.

What is a Foreign Currency Account?

A Foreign Currency Account (FCA) is also called a multicurrency or borderless account; is a transactional account denoted in a currency other than the home currency, and can be maintained by a bank in the home country (onshore), or a bank in another country (offshore). It allows you to send and receive funds in multiple foreign currencies, and are essential, particularly for individuals or business owners that operate on an international level.

FCAs provide a string of benefits for the holders such as faster cross-border payments, lower transfer fees and real-time exchange rates. In addition, they facilitate monetary and financial transactions by reducing currency exchange fees and simplifying the management of international transactions in different currencies.

FCAs typically benefit individuals who frequently transact with people in other countries; businesses that hire or contract people in other countries and businesses that sell their products or services in different currencies.

How foreign currency accounts work

Foreign currency accounts allow you to make and receive payments in foreign currencies, which makes dealing with international transactions much easier and more convenient. These accounts allow you to easily switch between currencies and take advantage of strong currency rates. Hence, they save you money with a harmonized account by avoiding the high fees that come with conversions.

Common currencies involved with multicurrency accounts include, but are not limited to:

• U.S. dollar (USD)
• Euro (EUR)
• Australian dollar (AUD)
• The Canadian dollar (CAD)
• Pound sterling (GBP)
• Japanese yen (JPY)
• Hong Kong dollar (HKD)
• Singapore dollar (SGD)

 

Advantages of foreign currency accounts

Control of multiple currencies

An FCA can hold multiple currencies, receive and send payments in foreign currencies.

Earns you interest on your currencies

Many foreign currency accounts accrue interest on certain currencies with fixed deposit rates. Interest is typically offered in tiers, with better rates on larger balances.

Leverage exchange rates

Most institutions that provide foreign currency accounts, allow you to switch among currencies. Hence, you can take advantage of strong exchange rates, especially through large transactions. Most banks use this as a unique selling point for foreign exchange accounts, as this is unlikely to leverage exchange rates through a regular current account.

Reduced exchange rates and cheaper conversion costs

The biggest benefit of using a foreign currency account is that it allows you to save on exchange rate fees, preventing you from incurring any loss that comes with regular bank transfers or wire transactions. For instance, suppose you or your business are receiving payments in AUD. In that case, you can use the same account to make AUD payments, without converting the currency back into your local one. Consequently, you save a lot by avoiding the high fees that come with conversions.

Easier and quick international transfers

Through online banking, you can make international payments and transfer money to and from your foreign currency account, swiftly and easily. Doing business with international clients becomes easier for both parties.

·         Efficiency and Convenience

FCAs are easy to open as all the currencies you deal in are managed in one place. All your foreign transactions come in and out of one account. Therefore, your monthly accounting is simple and less complicated, and you no longer need to hold separate accounts with different banks, making it even easier to track your income and expenses. To boot, its much faster to make and receive international payments with an FCA than with a regular current account which can additionally be time-consuming.

Disadvantages of Foreign currency accounts.

•          Lower Interest Rates

FCAs have lower interest rates on deposits as compared to a standard savings account.

•          Additional Fees & Charges

FCAs attract additional fees and charges, just like any other bank account. These fees could be minimum initial deposit, monthly maintenance fees, FX fees, conversion fees, incoming and outgoing international payment fees. You can additionally be charged for overdrafts or any special cash handling on your transactions. It's advisable to choose the bank that charges the lowest fees.

•         High Minimum Balance Requirements

Some banks may have a high minimum balance and maintenance requirement

•          Limited options: Investing usually isn’t available through multicurrency accounts.

 

Factors to consider when opening a foreign currency account.

• Forex Fee & Charges

Pay attention to forex fees and charges. You should ideally be able to transfer money across the globe from any of your current accounts securely and without incurring expensive forex charges.

• Currency Options

All major currencies should be availed by the bank.

• Debit Cards

Ensure that your FCA allows you to withdraw cash at multiple locations globally.

• Overdraft Facilities

It's important to find out if your FCA provider, offers an interest-free overdraft facility in case of unprecedented expenses. It goes a long way to choose a bank that offers an overdraft facility.