Top dollar How to hold the greenback
To protect against currency shocks some savers choose to hold foreign exchange. James Connington looks at their options
The sharp fall in the value of the pound after the Brexit vote, and fears of continued political instability worldwide, have focused people’s minds on the dangers that currency swings can pose to their wealth. This applies especially if you incur regular costs in other currencies – if, for example, you own a holiday home abroad.
One way to avoid sudden shocks is to hold some of the foreign currency you need in a special account.
But fees, exchange rates and the level of protection afforded all need to be considered. Here we run through the main options.
UK bank accounts
A number of banks offer foreign currency accounts to British customers, although many are inaccessible to the average saver.
Banks also use their own exchange rates when you buy the foreign currency; these rates are seldom the best. All come with protection from the Financial Services Compensation Scheme (FSCS), however, which covers up to £85,000 per person, per provider.
Barclays offers accounts in a range of foreign currencies, including dollars and euros. There is a $2,000 or equivalent minimum balance, below which a £7 quarterly fee is charged.
Transferring money into the account from a sterling account in the same name is free. Transfers of less than £100 from any other account also incur no charge; above this sum there is a £6 charge.
It’s free to transfer money to a sterling account in the same name, but international payments come with a charge.
Lloyds offers dollar and euro accounts for those who have a £50,000 income or £25,000 to save or invest. There is a monthly fee of €8 or $10, waived for the first three months, although only one fee is charged if accounts in multiple currencies are held. There is no charge for receiving money electronically. HSBC’s Expat service offers foreign currency accounts – which don’t require you to be an expat – but new customers need to maintain a minimum balance of £60,000 in total within their Expat accounts. Below this there is a £35 monthly fee. Investec offers a “currency access account” which allows multiple foreign currency balances to be viewed in one place. There is no ongoing fee, customers are assigned a dedicated foreign exchange dealer, and exchange rates are competitive. However, £50,000 worth of transactions must be carried out annually.
Citibank offers a multiple currency account for those with a minimum balance of $200,000.
Some foreign exchange brokers may let you hold foreign currency on account. For instance, Caxton’s international payments account offers a “buy and hold” feature. There are no fees and the exchange rates offered are competitive.
However, Richard Rawlinson of Caxton said broker services tended to be used when there was a specific event in mind, such as a house purchase.
He said: “We have held funds on account for a client for two years, although we prefer not to.
“I sometimes advise clients to keep their money with us for, say, three months to take advantage of a good rate. After that we discuss what should happen to the currency. If you want us to hold your money in dollars that’s fine, but we don’t want to become a free bank.”
Additionally, there is no FSCS protection for such accounts, although more complex means of holding currency involving “option” contracts do qualify for £50,000 of cover as they count as investments.
Foreign bank accounts
You may be able to open a bank account in the country whose currency you wish to hold.
However, there could be minimum balances and significant amounts of paperwork required. Check also that the bank doesn’t require you to visit in person.
It will be far easier to open an account abroad if you are already a customer of the bank in Britain.
The protection available will depend on local rules – in EU countries it is €100,000.
For this option, how you transfer the money from the UK will be a key factor. It’s unlikely that your bank will offer the best rate. Instead, consider transfer services such as Transferwise, FairFX, Currencies Direct, Moneycorp and Caxton.
There is no FSCS protection if a transfer company goes bust while it has your money.
These may work for a holidaymaker buying dollars a few months in advance to take advantage of a good rate, but holding currency on a prepaid card is not a viable longterm solution.
Money loaded on to a card is not protected by the FSCS, which means if the issuing company fails you could lose it all. Additionally, the balances that can be held are usually restricted.
‘We’ve held funds for a client for two years, although we prefer not to’
The fear of more political shocks has prompted some to hold dollars (above, Central Park in New York) rather than euros (right, French presidential contender Marine Le Pen)