A foreign currency account is like opening a regular savings account. Yet instead of dollars, the money put in is that of a foreign currency. You may choose from a Foreign Currency Savings Account or a Foreign Currency Checking Account.
Businesses and individuals consider it convenient to have foreign currency accounts, especially in countries they do business transactions. Foreign bank accounts come in handy for people who often travel abroad or to a particular country for months or longer.
Having a foreign currency account may not be as easy as your local currency account. However, the pros and cons to be discussed in this article may support your wise decision.
1. Account Requirements
Some countries have special laws regarding the opening of accounts. International law provisions to combat money laundering worldwide call for stricter requirements for bank account openings.
These requirements are generally uniform in most countries. If you have bank accounts in your state, you may not have that much problem opening a foreign bank account. You have to comply with the same requirements as follows:
- Two ID Pictures
- Proof of billing address
- Bank reference from the country of origin
- Minimum initial deposit
It’s also advantageous to open a foreign currency account in their offshore branch in your locality. This way, your fund will be more convenient to access in their country of origin, with cheaper conversion and transfer fees.
You might have a problem if you don’t have an existing local bank account where you can get your bank reference. Banks have correspondent relations where they rely on depositor information globally. Without your bank’s referral, you’ll have to wait for international banking verifications subject to provisions of the Anti-Money Laundering Law of the country where you’ll open an account.
There have been banks closing deposit accounts due to money laundering issues. Thus, you must have your own bank’s credentials to support the legitimacy of your transactions to avoid account closure or frozen funds.
2. Exchange Rate
You’ll be required to place an initial deposit according to the foreign bank’s standards. The foreign currency exchange rate upon account opening may work in your favour because your money may have a higher exchange rate, resulting in a higher deposit balance for your foreign currency account. The same exchanges work with your succeeding deposit transactions.
There’ll be a risk of losing money due to volatile exchange rates, fees, and charges. Lower foreign money exchange may decrease your capacity to pay for goods and services that you have reserved in your foreign currency account for the year.
Charges on minimum bank balance would add to your costs even if you gained on the conversion rate of your money. If money inflows to your account will not reach the bank’s cut-off, fees will be charged to your account, decreasing your deposit balance.
3. Interest Rate
Bank interest rates differ from bank to bank. Hence, a foreign bank may give a reasonable interest rate for your deposit. Remember that banks usually offer higher rates for accounts with higher balances and longer deposit terms.
It’s an unwritten norm that banks with very high interest rates on deposits need cash. This may mean that the bank has liquidity issues. The bank may have invested too much money to finance loans and other investments. This results in insufficient cashflows to serve operational expenses and payments to their depositors.
There’s a danger that banks like these may soon stop their operation and bring your hard-earned money with them. You may still cash in on deposit insurance, though. However, it may not be enough for your projected expenses, which is the reason for your deposit in the first place.
4. Security Issue
Opening a foreign bank account gives you a safer mode of accessing your cash wherever you transact business locally and abroad. It’s also safer to travel without bringing too much cash with you. There’s also the convenience of getting money without going through foreign exchange booths. Likewise, having a bank account in your host country’s currency helps you avoid currency exchange fees and other charges.
Moreover, foreign currency accounts are better secured against scams and other forms of fraud involving cash exchange transactions.
There’s a danger of fraudulent activities inside banks. Although chances may be very remote, there’s still a possibility of these happening. This is because bank personnel can access your details, which can be utilised to defraud you.
Owning a foreign currency account may boost your way of doing business abroad. Doing a little math on its pros and cons will allow you to decide whether it’s good to open an account today. You can check out the information provided here for more insights about having a foreign currency account.