Should You Invest In Foreign Currency Account?

What is a Foreign Currency Account? Foreign currency account is essentially an account maintained in a financial institution in another currency other than the local currency. As most banks in Malaysia are offering this facility, you can easily open up one account, with normally the condition that you have an existing deposit account with the bank.

There are several purposes why one would require a Foreign Currency account, namely:

1. An account to hedge against foreign currency transactions whether in the form of business or personal use;
2. Higher yielding interest rates (e.g., Australian and New Zealand Dollar) compared to local interest rates;
3. Children education funding;
4. Individuals with sources of income from overseas;
5. Investment return
   

One should bear in mind the most important factor to consider is the direction of the foreign currency versus local currency, no matter what the purpose are. In other words, one should invest into foreign currency account only if there is a perception or expectation that the foreign currency will appreciate against local currency. Otherwise, the benefits of having a foreign currency account may well have been offset by a depreciating foreign currency even though one may gain from the supposedly higher yielding interest rates for instance.

In general, many have this perception that local currency will tend to depreciate over time but certainly this could be a false perception at times. Economic fundamentals and market sentiment definitely have a large role to play in the direction of currency strength. For instance, the value of Australian Dollar had in fact depreciated by more than 20% against Ringgit Malaysia early part of this year!

Therefore, it's important to study these factors before plunging into any foreign currency or open a foreign currency account.

There are generally two types of account, being call deposit and term deposit account. Call deposit is equivalent to a savings account and in most currency offered, there will be nominal interest rates computed daily credited month-end. Currently, US Dollar does not offer any interests. Term Deposit on the other hand is a fixed term deposit account whereby higher interest rates are given upon maturity.The term can range from 1 week to 12 months.

Locally in Malaysia, there is generally no fees charged for opening a foreign currency account. However, the catch is this.....the bank would have earned from you already the moment you open one due to the exchange rate spread between buy and sell rates. As such, don't be overly excited when the bank officer tells you that they do not charge any fees!