Banking on the value of sterling
Clifford German on foreign currency accounts
Saturday 11 January 1997
It can also be useful, for paying bills and drawing cash abroad and receiving payment in cash and cheques expressed in foreign currencies, without the tiresome and costly business of buying and selling foreign currency for every transaction.
More often than not, owning a foreign currency account has enabled account-holders to impress their friends with talk of successfully hedging themselves against a depreciating pound. But it does not always work that way.
The unexpected strength of sterling against the dollar, the mark, the yen and other traditional "hard" currencies has drastically reduced the value of money in foreign currency accounts held by UK investors in the last year or so by anything up to 25 per cent.
This trend could have some way to run because the pound is still strengthening in anticipation of increases in UK interest rates this year. Travel agent Thomas Cook is tipping the pound to reach $1.78, 8.85 French francs and 230 pesetas before the end of the year. Some experts think sterling could go even higher, which would further increase paper losses for UK residents holding accounts in foreign currencies.
But all trends come to an end and the time will surely come for shrewd investors to ride the return of the pendulum and make money on a bank account in foreign currency.
Holding hard currencies like dollars, marks and yen has, after all, been the right thing to do for most of the past half century, and it has been entirely legal ever since the whole structure of exchange controls was imperiously swept away by Mrs Thatcher and Sir Geoffrey Howe in the first few months of the new Conservative government 17 years ago.
Since then anyone with a few pounds to spare could open a bank account in foreign currencies either with a UK or foreign bank in the country of origin, or in offshore banking locations like the Channel Islands, the Cayman Islands, or the Bahamas. Even that was not strictly necessary when UK and foreign banks in London began offering investors the chance to open foreign currency accounts without even going abroad. Most UK and foreign banks in London will open accounts in a range of currencies.
But small investors may find that the image is less glamorous than the reality. Current accounts offer a cheque book and are ideal for paying bills and banking rent on foreign property, although if this is what you want it for, you need to be sure the bank you open your account with has a correspondent relationship with the bank your counterparty uses abroad.
In particular, if you want an account in one of the lesser currencies like escudos or drachmas it might be best to open an account with a bank which has branches in the UK and in the country whose currency you choose.
Most banks want a minimum balance of around $3,000 or the equivalent in other currencies, to operate the account without charge. For that you will not be expecting any interest. But if you choose a bank which will give you a cheque book and cash card, you can draw currency from your account whenever and wherever you are travelling in your chosen currency area, and if you make a lot of transfers it can still work out cheaper than buying and selling small sums of currency to meet each transaction.
It is also a valid alternative to using your credit card, which still leaves you open to unfavourable exchange rates when your account is debited.
For the same sort of sum you can open a short-term deposit account which will earn some interest . But to get a reasonable return you need something like $10,000 and to tie it up for up to six months.
It is important not to get carried away by the rates on foreign currencies which appear in most financial market reports. These refer to big sums in excess of pounds 1m-worth of currency.
Even now UK retail investors will be lucky to get 3 per cent on a US dollar account tied up for a year, 2 per cent on a Deutschmark account, 1-2 per cent on Swiss francs and less than 1 per cent in yen, compared with up to 6 per cent in sterling.
You will also have to buy the foreign currency to put in the account. That could swallow 6-8 per cent of the capital. If you are not deterred, almost any bank in the UK will open a currency account for you, in the UK or the Channel Islands or in the currency area you choose.
But you will usually do best with a bank with branches here and abroad, like Citibank for dollar accounts.
04 March 2015 03:00 PM
The company was found to have unacceptably long call waiting times
27 February 2015 07:30 PM
27 February 2015 07:30 PM
27 February 2015 12:01 AM
The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter
26 February 2015 04:17 PM
Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century
27 February 2015 12:01 AM
The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.
24 February 2015 08:57 AM
A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers
23 February 2015 04:02 PM
The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges
20 February 2015 08:00 PM
In 1999 stock markets quickly tumbled, losing many a fortune in the process
20 February 2015 08:00 PM
13 February 2015 08:00 PM
13 February 2015 08:00 PM
06 February 2015 09:00 PM
Scottish Power hit with sales ban by regulator
Dirty tricks in a divorce can cause some nasty surprises
10 tips for taking out a personal loan
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
There are 'dark corners' of the investment and pensions industry, says Pension Minister
- 1 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 2 What happens to your body when you give up sugar?
- 3 Turkish Airlines flight TK 726 crash-lands on Nepal runway in dense fog
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 The 'sex selfie stick' lets you FaceTime the inside of a vagina
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads