Opening a Foreign Currency Account can be an incredibly useful tool or a black hole of fees and charges. So, is it something your business needs? This guide covers the basics of how foreign currency accounts work and showcase the best (and worst) features and when they are most useful.
Foreign Currency Accounts have a lot in common with your everyday transactional banking account in New Zealand dollars that you might already use for your business. You can use them to receive money or pay money. Most accounts also accrue dismal interest, just like most everyday banking accounts.
The big difference is that the account is based in another currency, such as US dollars. They are also subject to a load of international fees – a reality you should consider before opening an account.
Transferring money internationally can also be an option. Our comparison table allows you to compare banks and exchange providers in terms of their rates and fees.
What will this guide cover?
This guide aims to help you understand all areas of opening a foreign currency account. It will cover:
- Where to get a foreign currency account
- Most common currencies available
- The pros and cons
- Foreign Currency Accounts: What to consider
- Fees and Charges
- When to use a foreign currency account and why
- Alternative options
Where to get a foreign currency account
All major banks offer the ability to open a foreign currency account. You can apply in-store, but you will likely be transferred to their business or corporate banking department. To open a foreign currency account you must hold a current account first. The major banks that offer currency accounts are:
Most common currencies available
US Dollar, Euro Dollar, British Pound, Japanese Yen, New Zealand Dollar accounts are offered at every bank. Most banks offer accounts in the most common 10-15 international currencies.
You can read our guide for transferring money internationally here.
The pros and cons
Most of the best features relate more to businesses that are exporting or receiving money in from overseas. A foreign currency account allows you to bill in a foreign currency, which makes dealing with overseas customers much easier. It also allows you to hold the foreign currency in a local account that you control.
One of the biggest advantages of these accounts is avoiding conversion costs. If your business receives US dollars into an account and can then use the same account to make US dollar payments, you are avoiding having to convert the currency back into Australian dollars.
This is a huge benefit and can save you anywhere between 1-10%, depending on your cost of conversion. It also saves you a fair bit of hassle too.
The last thing to consider is buying currency ahead of time and putting it in a foreign currency account in case the exchange rate falls. While this is a way you can, it’s important to understand that it does tie up your cash-flow. Can your business sustain that? There are also other ways of locking in an exchange rate, without having to open a foreign currency account (see below).
The biggest consideration is the cost. Bank fees on these accounts are high, compared to a regular local Australian transaction account and are different, depending on which bank you use.
Foreign Currency Accounts: What to consider
We’ve put together a handy list below that highlights all the things you need to consider before you open a foreign currency account:
- Minimum balance requirements: ANZ hold a minimum balance requirement
- Tiered interest
- Monthly fees – HSBC and ANZ offer foreign currency accounts without monthly fees. Westpac charge a set fee of $10 NZD per month.
- Being able to deposit and withdraw cash – This is a great feature which not every bank offers. HSBC only offers it for US and Hong Kong dollars.
- Access to a Foreign Currency Overdraft – Not every bank offers this product, which is surprising.
- Multi-currency accounts – This allows you to have multiple currencies that are held in the one account. This is a great product, but make sure to check the charges and conversion costs if you transfer currencies from one to the other.
Fees and Charges
The most common charge is the monthly account-keeping fee, however it may not be the one to watch out for. Most banks charge you when currency comes into the account AND when you send currency out. For a business that has a lot of payments and receipts in foreign currency, this fee can add up quickly so be careful to monitor it thoroughly.
When to use a foreign currency account and why
If your business is just starting to send money overseas, or receive money in other currencies, foreign currency accounts are worth looking at, but may not be cost-effective, given the fees that come with it. If you are receiving more than $500,000 in another currency, it is worth considering.
Foreign Currency Accounts are most effective when you use them to receive currency from customers AND pay the same currency out to your suppliers. In this case, you just need to keep an eye on the bank fees for receiving and sending the currency, along with any monthly account-keeping fee.
Foreign currency accounts can either be a fantastic choice for you or something that you don’t really need given the cost of running the account. If you’re not sure if a foreign currency account is right for you, here are some other options:
- You bill in a foreign currency, but request your customers to pay you in NZD.
- You bill in a foreign currency and use a non-bank currency provider to convert the money.
- Request that your customers pay you in NZD at all times.
Lucy and her husband Richard run an organic farm in New Zealand. They are suppliers for over ten different businesses in New Zealand and for over twenty different business internationally. When they need to bill international businesses for their products, a foreign currency account really helps. Lucy and Richard can bill in multiple currencies and save between 1-10% than if they were to bill in NZD through their current account. As they already bank with ANZ, they have opened a foreign currency account with them to keep the whole process as hassle-free as possible.
Sending money to family overseas? You can read this article here to find out the best ways to do it.