Many of us need to move money across international borders for various reasons. These could be to pay overseas workers, purchase goods, or send remittances. Forex rates have been extra volatile during recent weeks and months. Not being able to predict or control your ability to deal in multiple currencies can be more than an inconvenience. This applies to businesses and individuals alike. A foreign currency account (FCA), sometimes known as a multi-currency account (MCA) can be just the solution.
As the name suggests, FCA holders can simultaneously have more than one currency in the same account. The currencies one is allowed to hold vary widely across countries and banks. Most banks in mainland Europe allow customers to hold about five currencies including the USD, EUR, GBP, JPY, and the local currency. In addition, Banks in the UK also allow NZD, AUD, and CAD. Indian banks let FCA holders maintain four foreign currencies, which are the USD, GBP, EUR, and JPY. Some international banks in China offer FCAs with up to 10 different currencies.
In addition to big banks, some of the larger fintech players also provide online FCAs. These can come with a much wider currency portfolio, lower fees, and more features. All FCAs are subject to the same regulatory measures in their respective geographies. However, the differences in features, fees, and charges can be significant. Common fees associated with FCAs may include monthly or semi-annual maintenance, charges for incoming payments, charges for outgoing payments, charges for currency conversion, charges for ATM usage, and so on. It is notable that most banks impose a few of these fees, while some banks impose almost none. MCAs with Fintech firms are usually cheaper to use and maintain than those offered by big banks. It is well worth researching the terms of an MCA/FCA before starting one.
The criteria for starting an FCA vary by region and bank. Broadly these consist of supplying some documents, primarily proofs of identification. Traditional banks ask customers to walk into a branch for a KCA check. The more IT-enabled providers can complete this process online. Some FCA providers ask customers to maintain a minimum balance in at least one currency. There is usually no upper limit on balance or deposit amounts. However, some banks ask customers to prove that the forex was obtained from lawful sources. This can involve more documentation at the time of making forex deposits.
The best feature of FCAs is the full and instant interconvertibility between held currencies. This means customers are insulated from forex rate fluctuations. FCA holders can buy and sell eligible currencies at will, as and when the exchange rates are favorable. They are also secure from the risks of currency changes. For example the EU member Latvia abandoned its national currency, the lat, and switched to the euro in 2014. Latvian FCA holders had no need to physically change their currency because the banks did it for them at the pegged rate.
Some banks allow customers to link multi-currency debit cards to their FCA/MCA accounts. This can be great if you travel a lot. Using a forex debit card abroad can be a lot cheaper than using your regular international debit card. Some of these cards also enable free of charge ATM forex (local currency) cash withdrawals up to a limit.
FCA for life
An FCA is ideal if you plan to live or work abroad. You can use your FCA account to take care of overseas mortgage payments or to support an offspring who wants to pursue higher studies. It is also an excellent choice if you work overseas and send frequent remittances to support family back home. However, banks often charge steep fees for such transactions. A better idea is to link your FCA with an efficient international money transfer service such as Ria. That way you can have the best of both worlds.
FCAs also make life easier for people who receive income from abroad. You may have foreign earnings in the form of rental income, payment for services rendered to overseas clients, and incoming payments from foreign buyers of your exports. Or you may be on the payroll of an international organization that pays salaries in USD/EUR. Receiving payments into an FCA can be cheaper than bank transfers which involve currency conversion.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.