Playing the pound is hardly a holiday

Don't let sterling's strength tempt you into trying currency speculatio n

Don't hold back from buying your foreign currency now if you are going on holiday soon, but equally don't get carried away with ideas about currency investment, City experts are warning.

With the pound, according to one analyst, "excessively high" even after stumbling last week, the safe bet for people going away in the coming months would be to buy currency now.

There is no great hurry, however. Even if sterling did fall from its present highs (10 francs and 3 marks to the pound, for example), holidaymakers looking to change a few hundred pounds might only miss out on pounds 10-pounds 20 of currency. "It may simply not be worth the trouble," says Graham Swift, an investment analyst at NatWest Stockbrokers.

Indeed, where you choose to buy your currency could make as much difference to the end amount as when you buy it. (Marks & Spencer came top in our survey earlier in the summer - offering 3 per cent more currency than the worst of the banks and travel agents - with Royal Bank of Scotland also a reasonable choice). And if you are planning to buy your currency now, bear in mind the interest you'll forgo and whether you're happy having the money sitting at home until you actually go.

Sterling's strength and, importantly, the prediction that it will weaken again, are also driving suggestions that it may be worth investing in foreign currency. The idea is that you buy, say, francs now at 10 to the pound and swap them back into sterling when the exchange rate comes down again. The same francs would then give more sterling.

But there are a number of serious problems with speculating on currencies, which prompts some City experts variously to describe it as "a mug's game" and "extremely high-risk". Firstly, don't think about walking into a bureau de change, buying your currency, and then selling it back next year at a profit. Even at the keen exchange rates offered by somewhere like M&S (which also has no commission charge) the difference between the buying and selling prices on currencies at any one time is such that the exchange rate will have to improve 5 per cent or more before you even stand to get your original money back. With many bureaux de change, the "spread", including charges, could work out at closer to 10 per cent.

Meanwhile, if you do not have a foreign-currency bank account to hold this currency, (which most people don't - and shouldn't: they cost) you are going to miss out earning interest on this money. The interest you might otherwise earn on your pounds could amount to another 4 per cent after tax.

Admittedly, there are ways of reducing these costs - although they are not well known. Rothschild Asset Management, for example, runs a range of funds similar to deposit accounts that allow investors to choose a currency, earn reasonable interest related to local rates, and switch between currencies for a charge of around 1 per cent. Called the Rothschild Money Funds (tel: 01481 719700), it has no minimum investment.

But even with better deals such as these, analysts still warn against the potential of currency investment. "We try to kill the idea that there's any real money to be made [from investing in currencies]," says Mr Swift. "Currencies don't move as fast as other investments." For example, major European currencies could rise 10 to 15 per cent against sterling over the next year, say analysts. But in the context of sterling's claimed overvaluation, this would hardly be a massive return for UK investors buying, say, francs.

Shares tend to produce higher returns, especially over the longer term. Even taking a currency with a long-established reputation for strength, the returns will often compare poorly with what else you could have done with the money. Say you'd bought deutschemarks nearly 20 years ago, when there were five to the pound. Sterling's recent strength is a blip on a chart of the strengthening mark. But even if you'd sold out when the pound had fallen to a low of 2.2 marks - and including the interest you might have earned on the money - you might have tripled your

money over this period. Even a UK building society would probably have beaten that, while over the same period German shares rose 800 per cent in mark terms alone.

Hence Mr Swift recommends that, rather than taking advantage of sterling's strength to buy currency, investors should use the opportunity to buy overseas stock-market investments that could also offer the potential for currency gains. He suggests looking at European unit or investment trusts, which can be held in tax-free PEPS, although other advisers point to Japan, where the stock market has long been in the doldrums and where the yen has also weakened.

Some advisers believe currency investment should not be written off entirely, however. Investors should be wary of telephone-based schemes offering currency dealing "on margin" - in effect borrowing to invest in the hope of enhancing gains. These tend to be high-risk and are not suitable for most people. But some argue that there is a case for what are called managed currency funds, which give the responsibility for picking a portfolio of currencies to a professional manager; Guinness Flight Hambro is one of the best known in this market. Such funds offset the risk of an individual putting everything into the wrong currency, although it also means you will never catch even the best- available returns from currencies. And managed currency funds cannot be put in PEPS either.

Have you tried new the Independent Digital Edition apps?
Oscar Pistorius is led out of court in Pretoria. Pistorius received a five-year prison sentence for culpable homicide by judge Thokozile Masipais for the killing of his girlfriend Reeva Steenkamp
voicesThokozile Masipa simply had no choice but to jail the athlete
Arts and Entertainment
Sister Cristina Scuccia sings 'Like a Virgin' in Venice

Like Madonna, Sister Cristina Scuccia's video is also set in Venice

Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004

Singer says the track was 'force-fed down people's throats'

Life and Style
The Tinder app has around 10 million users worldwide

techThe original free dating app will remain the same, developers say

Finacial products from our partners
Property search
Going down the wrong road: parking fines are
nudging people into debt difficulties

Charges related to car parking rising and leading to serious money woes

Going down the wrong road: parking fines are nudging people into debt difficulties

Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends

Mark Dampier: Woodford’s young companies could be the stars of the future

Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends

A trader works on the floor of the New York Stock Exchange

Simon Read: The markets might not be calm but you should be

Don't panic, it’s a wise idea to check investments regularly to ensure they are on target for your hoped-for returns

Only six per cent of the 13,000 new homes bought during Help to Buy’s first nine months were in London

Money Insider: Help to Buy must be boosted by building

With little or no wage growth being seen in the UK, increasing house-price inflation could see the number of first-time buyers slide further, unless there’s a new accelerated house building programme

House buyers can take their pick of more than 3,500 home loans, the most available since the financial crisis

Simon Read: Those cheap home loans may be built on shaky foundations

You should ignore the headline offers and trickery and work out the total cost of borrowing under different deals

Denise Leigh, who appeared in a production
of Rigoletto with Alan Opie, was left without an essential service

The opera singer, the broadband delay and why customers aren’t divas if they expect a good service

Denise Leigh, who appeared in a production of Rigoletto with Alan Opie, was left without an essential service

Problem debt adds £8bn cost to the economy

A charity has calculated the cost to us all of unmanageable debt – from lost productivity to the extra demands on the NHS

Payday loan stores are to face tougher regulations after moves proposed by the Financial Conduct Authority (FCA) call on more responsible lending

Calls for payday lenders to sign up to an officially recognised price comparison site

The regulators are at last tackling the high-profile payday lenders, but they appear to be ignoring the growing problem of internet loan firms

According to the research, only one in five customers trusts their energy company

Rap for energy firms won’t stop the rising prices

As the cold weather hits, the question of soaring bills will be felt by each of us at home

Nikki Galloway has enthusiastically embraced buying and selling over the internet

Selling goods online: The pros and cons

Nikki Galloway (above) sells jewellery via her own website as well as on Facebook, Amazon and Bouf

The city of Queenstown on the shores of Lake Wakatipu with the Remarkables mountain range in the background.

You can have it all: Asian stocks get on the dividend bandwagon

Queenstown on Lake Wakatipu in New Zealand. The country’s stock market was boosted last month on John Key’s re-election

Staff at work in the packet and parcel section of the Royal Mail's Swan Valley mail centre

Bargain hunter: Halfords’ zero-VAT child car seats are cheap and with a safety message

Royal Mail is cutting its small parcel charges from 20 October

Elderly people living in certain countries abroad are being denied pension rises

Anyone who moved to countries including Australia, Canada, South Africa and a 100 other places, have had their pensions frozen at the rate it was paid at when they left the country

Governor money plans to save clients time and cash with its online service

Simon Read: Relegate struggling funds from your plans

Every fund has good years and bad, but consistent underperformance over a number of years points to something more fundamental

Investments: Spot the difference and pick a fund that’s ready to go it alone

Nick Train thinks luxury fashion brand Burberry is one of the companies that has prospered in digital marketing

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Helpdesk Analyst

    £23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

    Senior Helpdesk Analyst / Service Desk Co-ordinator

    £27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Day In a Page

    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth
    Will there be an all-female mission to Mars?

    Will there be an all-female mission to Mars?

    Women may be better suited to space travel than men are
    Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

    'They poured water on, then electrified me...'

    If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
    James Wharton: The former Guard now fighting discrimination against gay soldiers

    The former Guard now fighting discrimination against gay soldiers

    Life after the Army has brought new battles for the LGBT activist James Wharton
    Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

    Panic over Ebola threatens to infect the midterms

    Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
    Premier League coaches join the RSC to swap the tricks of their trades

    Darling, you were fabulous! But offside...

    Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
    How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

    How to dress with authority

    Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
    New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

    New book on Ian Curtis sheds fresh light on the life of the late singer

    'Joy Division were making art... Ian was for real' says author Jon Savage
    Sean Harris: A rare interview with British acting's secret weapon

    Sean Harris: A rare interview with British acting's secret weapon

    The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
    Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

    Tim Minchin interview

    For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
    Boris Johnson's boozing won't win the puritan vote

    Boris's boozing won't win the puritan vote

    Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
    Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

    Tim Wheeler: Alzheimer's, memories and my dad

    Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album