• Investing in foreign currency fixed deposits

    Fixed deposits, or time deposits, are pretty popular in Singapore, and most of the banks offer scope to invest across a number of foreign currencies. When you invest in a foreign currency time deposit, you’re generally thinking about a long-term outcome.

    Besides, you would often hear that foreign currency deposits earn you good interest returns. The highest interest rates that you can expect of Singapore Dollar time deposits would be around 1.25%. Some of them require savings to be locked up for several years. However, with foreign currency deposits, you can expect rates of interest as high as 3% or more.

    Undoubtedly, investing in a foreign currency deposit comes with its own set of risks. Ideally, you would want to bring all the factors into consideration to weigh the risks involved. This would in turn help you in estimating the gains you could make. Besides, you can actually decide on the currency that would benefit you the most.

    What are the ways to invest in foreign currency fixed deposit?

    It’s possible to invest in foreign currency deposit in two ways:

    1. You can open a local fixed deposit account that provides the option to invest in foreign currencies.
    2. You could open the time deposit account in the foreign country itself.

    However, opening an account in a foreign country may need you to be present in the country where you want to open the account. The terms and conditions involved might also need you to meet certain criteria that the country dictates. It could be worse, and you might lose out on the actual rates of interest offered within the country you reside in.

    What should you consider before investing in a foreign currency fixed deposit?

    There are several things you must consider before investing in a foreign currency deposit. It’s an established fact that the lower the risk, the lower the returns would be. Time deposits usually are of a low risk, and thus the earnings aren’t too high either. However, some currencies have relatively high rates of interest, and some don’t have any interest yield at all.

    Another thing to note here is, the longer you leave your fixed deposit for, the more you will earn on the amount. Your interest earnings increase with time. You should think way ahead into the future before investing in any foreign currency deposit, as you would ideally not use the money until maturity. In case you have to withdraw the money prematurely, you would have to pay a penalty.

    Advantages of a foreign currency fixed deposit

    There are several benefits of investing in a foreign currency fixed deposit. Here’s a list:

    • Long-term capital appreciation, good interest returns, and a safety net for your money are the primary reasons you can invest in a foreign currency fixed deposit.
    • You might also be investing in foreign currency deposits for the sole purpose of diversification.
    • Investing in foreign currency deposits is usually considered safe, as the influence of market volatility is very limited in fixed deposit accounts. It is a very low-risk investment.
    • Besides, foreign currency deposits promise you higher rates of interest than a savings account, so you can earn more at the end of the tenure. Also, it is generally considered a steady source of income, providing you with regular earnings. You can set your account up to earn interest on a monthly, quarterly, or yearly basis.
    • You can also choose to have the savings deposited to another account. This way you can choose to use the earnings without touching the initial fixed deposit. This actually works as a good retirement plan.

    Why must you save in a foreign currency fixed deposit?

    There are several cases to establish why it could be beneficial to invest in a foreign currency deposit as early as possible.

    • If you are a foreigner on deputation to Singapore or choosing to work in Singapore for a few years, you might want to deposit some amount in your home country’s currency, staying in Singapore. This can help you save some amount for emergencies or for capital appreciation. You can time the fixed deposit tenure as per the length of your stay in Singapore.
    • Deposits in foreign currencies could help you take care of you or your family’s future expenses. You could be sending your child abroad for higher studies in the future. If you had already invested in a foreign currency time deposit for this country earlier, the earnings made could help you take care of your child’s financial and educational requirements when s/he is in that country.
    • You could be moving overseas with your family. Having a foreign currency deposit in this case would turn out to be quite useful.

    The risk of losses involved could be easily mitigated as you will have to utilise the currency at some point anyway. Besides, a few banks won’t charge you any sort of transaction fees for converting the money back into Singapore Dollars, in case the foreign exchange works against you. However, banks might levy an exchange rate fee on your foreign currency time deposit.

    Why should you take interest rates into consideration?

    • Time deposits help you earn interest on the deposited amount over a fixed term. Generally, you don’t withdraw from time deposits until they mature.
    • The interest amount on time deposits are usually higher than those on other traditional accounts, and foreign currency deposits provide you with the scope of earning more than usual as they tend to offer higher rates of interest. This depends specifically on the currency you’re investing in. There are currencies that offer lower rates of interest, or none at all. Earning rates also depend on the amount deposited and the tenure you deposit it for.
    • Moreover, the market in Singapore is highly influenced by the global market, and thus you must be equally aware of the trends in the international market. Countries that are considered to have a stable economy usually provide base interest rates close to 0%. On the other hand, you can get better or higher rates of interest for countries whose economies are relatively less stable. So, you need to really study the market well before you choose the currency to invest in, as it will help you to maximise your earnings and help you understand if the investment would be of value to you.
    • You should also bring into perspective the exchange rates that banks charge you on your foreign currency deposit.

    What should you be ideally looking for while investing in a foreign currency deposit?

    There are a few things you should ensure checking while investing in a foreign currency fixed deposit:

    • The investment should be able to guarantee you with long-term capital appreciation.
    • You must be able to ensure if it fetches you a higher rate of interest compared to other currencies.
    • It should diversify the risks.
    • It should provide you with security on your investment.

    Why should you invest in foreign currency deposit staying in Singapore?

    There are several banks in Singapore that provide you the option of investing across a number of foreign currency deposits. All of them offer disparate rates of interest. Some of the currencies have comparatively high rates of interest, but time deposits in currencies such as Euro, Swiss Franc, and Japanese Yen barely offer any interest rate. So, you should ideally choose currencies that offer you higher interest rates. You must inspect all the terms and conditions before you choose where to invest.

    Here is a list of banks with the minimum and maximum rates of interest offered by each of them against different foreign currency deposits:

    Note: These rates are bound to fluctuate depending on the amount and tenure of the sum deposited.

    Bank of China Foreign Currency Fixed Deposits:

    Currency Minimum interest (p.a.) Maximum interest (p.a.)
    USD 1.0625% 1.75%
    AUD 0.9375% 1.625%
    CAD 0.4375% 1.0625%
    RMB 1.85% 2.3%
    EUR 0.0001% 0.01%
    GBP 0.0625% 0.375%
    HKD 0.0625% 0.25%
    JPY 0.0001% 0.0001%
    NZD 1.4375% 1.875%

    CIMB Bank Foreign Currency Fixed Deposits:

    Currency Minimum interest (p.a.) Maximum interest (p.a.)
    USD 0.8775% 2.015%
    Sterling pound 0.0075% 0.995%
    AUD 1.3475% 2.335%
    NZD 1.6775% 2.655%
    EUR 0% 0%
    Canadian Dollar 0.645% 1.73%

    DBS/POSB Foreign Currency Fixed Deposits:

    Currency Minimum interest (p.a.) Maximum interest (p.a.)
    USD 0% 1.6%
    GBP 0% 0.365%
    AUD 0% 1.485%
    CAD 0% 1.09%
    NZD 0% 1.625%
    CHF 0% 0%
    JPY 0% 0%
    CNH 0% 1.42%
    HKD 0% 0.38%
    EUR 0% 0%

    HSBC Bank Foreign Currency Fixed Deposits:

    Currency Minimum interest (p.a.) Maximum interest (p.a.)
    USD 0% 1.39%
    GBP 0% 0.29%
    JPY 0% 0%
    CAD 0% 1.36%
    CHF 0% 0%
    NZD 0% 1.56%
    AUD 0% 1.32%
    HKD 0% 1.01%
    EUR 0% 0%
    CNY 0% 1.95%

    OCBC Bank Foreign Currency Fixed Deposits:

    Currency Minimum interest (p.a.) Maximum interest (p.a.)
    USD 0.84% 1.46%
    AUD 0.33% 1.39%
    CAD 0.49% 0.88%
    CNH 0.28% 1.17%
    EUR 0% 0%
    HKD 0.01% 0.23%
    JPY 0% 0%
    NZD 0.61% 1.54%
    GBP 0.01% 0.27%
    CHF 0% 0%

    Standard Chartered Bank Foreign Currency Fixed Deposits:

    Currency Minimum interest (p.a.) Maximum interest (p.a.)
    USD 0.175% 1.242%
    GBP 0.05% 0.3%
    AUD 0% 1.532%
    NZD 0% 1.767%
    EUR 0% 0%
    CAD 0.286% 1.017%
    HKD 0% 1.18%
    CNH 0% 3.65%

    Disadvantages of investing in a foreign currency fixed deposit

    There are a few disadvantages associated with investing in a foreign currency deposit, such as:

    • Investing in a foreign currency time deposit involves meticulous thinking and decision-making.
    • The interest rate on a foreign currency time deposit depends on the currency. While some currencies earn you high rates, others don’t yield any returns at all. Besides, the rates keep fluctuating.
    • You wouldn’t want to really touch a foreign currency deposit until it matures. If you plan to utilise a part or whole of it before the tenure ends, you should be prepared to pay a penalty. If you plan to actively invest, this shouldn’t be your ideal option.

    So before you really go ahead, you must weigh all the pros and cons associated with investing in a foreign currency deposit. You must bring into perspective what your future goals might be, and only decide then. You must also check whether the currency you invest in would be beneficial for you in the long run. You can consult with banks or go through their website to get a better idea about the rates offered. Besides, investing in foreign currency deposit diversifies your investment and builds a safety net on your investment portfolio.

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