Holding cash in any currency poses a risk
It’s difficult to deposit foreign cash in a UK bank account if you want a stash of euros or dollars
QIn the uncertainty over Brexit and the exchange rate, I have changed some sterling to Euros and US Dollars in expectation of trips overseas in the coming years and to ensure I have some spending money. Now I have the cash at home, but I am aware it isn’t accruing any interest as it would in sterling in a savings account. Is there any way I can deposit the foreign currency in a bank account – I am a UK resident and tax payer – and get some interest on this?
AThere are a number of factors that have influenced the value of the pound in recent years, one of which was the outcome of the EU referendum in 2016. While it’s impossible to say how the value of the pound may change in the future, many people, like yourself, have decided to hedge their bets and buy their holiday money well in advance.
In June 2016, £1 could net you €1.27. At the time of writing, £1 is equal to €1.18. That means a holidaymaker spending £800 during their trip would be losing out by over €70.
While buying your travel money in advance offsets the risk of its spending power being impacted should the exchange rate drop any further, I typically wouldn’t recommend withdrawing large amounts of any foreign currency as cash.
Holding cash means its spending power can sometimes decrease over time, depending on the rate of inflation. But there’s also the risk of losing your money should you be unfortunate enough to suffer a break-in, flood, or similar. And one of the main problems
of holding foreign cash is that it’s very difficult to deposit foreign cash into a bank account.
Although there are several UK providers of multi-currency accounts, including Barclays, HSBC, app-based bank Starling and currency exchange provider Transferwise, only Barclays allows you to deposit foreign cash. You can do so with its Euro Account and US Dollar Currency Deposit Account.
As far as I can tell, Barclays is the only one that offers a foreign currency account paying interest – its US Dollar account specifically. But the measly rate of 0.35 per cent the bank offers is eclipsed by the 2 per cent fees it charges for depositing and withdrawing cash from the account.
And while European and
American banks would accept euro and dollar deposits respectively, these accounts are likely to be restricted to residents of the countries they are based in.
Depending on how much money you’ve withdrawn, you may want to consider storing the cash in a secure place (for smaller amounts), or converting it back into sterling at a specialist foreign exchange bureau.
While inflation will decrease the value of your cash over time, bear in mind that the rate of inflation in Europe and the US is very low – just 1 per cent in Europe and 1.8 per cent in the US.
If you exchange your euros and dollars back into pounds, it may be worth shopping around as small differences
in the exchange rate offered can make a big difference if you convert a large amount of money.
Though counterintuitive, having your cash in pounds makes it much easier to deposit into one of the foreign currency accounts mentioned above.
Of these accounts, Transferwise’smulti-currencyaccount has the lowest fees and choice of currencies available. However, as it’s not a bank, your money would not be covered by the Financial Services Compensation Scheme (FSCS).
Starling’s Euro Account qualifies for FSCS protection and has lower fees than Barclays’ and HSBC’S foreign currency accounts. In both cases you should deposit the cash into your current account,
then transfer it to the foreign currency account.
The only guaranteed way to beat inflation is to put your money into a high-interest UK savings account. At the time of writing, you can put your money in a one-year fixed rate bond earning as much as 1.9 per cent, but this requires locking away your money for a year.
Alternatively, you could opt for an easy access account paying up to 1.45 per cent – the spending power of your money would still be chipped away by inflation, but not by much.
If you’re thinking about protecting any other holiday spending money from fluctuating exchange rates, you may want to consider getting a prepaid travel money card. You can purchase either single
or multi-currency prepaid cards that can be loaded with cash before you travel, allowing you to lock in the exchange rate at the time and protect it from any fluctuations in the future.
These cards aren’t an ideal long-term solution for storing your money as most charge fees for long periods of inactivity, and most also charge fees if you use them to withdraw cash at an ATM. Money on prepaid cards isn’t covered by the FSCS either, so you could lose it if the card provider goes out of business.
But, if you have a date in mind for when you’re likely to spend the money, prepaid cards offer a safer way of holding your cash than at home.