When Would Opening a Foreign Currency Account Make Sense?
If you often send money or make payments overseas from Canada, opening a foreign currency account in Canada can help you save thousands of dollars on transfer costs. It will also save you the time you would have spent looking for the best exchange rates.
A foreign currency account works like any other bank account you have. You can use it to send and receive money. Some banks may even offer interest on savings. But the big difference is that a foreign currency account is denominated with a foreign currency.
This guide explores the basics of opening a foreign currency bank account. You’ll learn how a foreign currency account works, its pros and cons, and how to open one. But first, let’s look at what a foreign currency account is.
What Do We Mean By a Foreign Currency Account, Canada?
A foreign currency account is a multi-currency account that allows account holders to send or receive funds in different foreign currencies. Thankfully, such accounts can help you change how you carry out your international business operations.
You can hold funds in your foreign bank account in the currency of a transaction or even exchange it for Canadian dollars. What makes foreign currency accounts attractive is that you can use them for personal or business operations across the border.
The good news is that international banks that offer foreign currency accounts can allow you to deposit or withdraw funds from your account at any of their branches or online. Some financial institutions may only deal with major currencies, like USD and GBP.
How a Foreign Currency Bank Account Works
A typical bank account can convert money to and from Canadian dollars for transactions denominated in foreign currencies. Foreign currency accounts, on the other hand, allow account holders to send and receive money in different currencies.
When using a foreign currency account to make payments overseas, you enjoy efficient and streamlined transactions. As a result, it helps you save time and avoid the high fees that come with currency conversions. You don’t have to worry about currency fluctuations.
The good thing about a foreign currency account is that it allows you to switch from one currency to another. For that reason, you can take advantage of the best exchange rate when sending money abroad. You won’t incur extra fees like in bank-to-bank transfers.
Here are some of the major currencies accepted in most foreign currency accounts.
- Euro (EUR)
- U.S. dollars (USD)
- Japanese Yen (JPY)
- Canadian dollars (CAD)
- Australian dollars (AUD)
- Hong Kong dollars (HKD)
- New Zealand dollars (NZD)
- Great Britain Pound Sterling (GBP)
Factors to Consider When Opening a Foreign Currency Savings Account
Every bank or financial institution that offers foreign currency accounts has different fees, features, and requirements that must be fulfilled. For that reason, you should open a flexible foreign currency account that can satisfy all your needs.
Here are the factors you must consider when opening a foreign currency account.
Number of Supported Currencies
Most international banks offer a vast range of major currencies, but not all. For that reason, you need to check if the account provider offers the currencies of your interest. Ensure that the people you do business with can send their payments to the account.
Minimum Account Balance Requirements
Most banks require account holders to have a minimum account balance every month. That said, you must ensure that you have enough money to open a foreign currency account with any bank. Choose an account minimum that matches your cash flow.
Foreign Currency Account Fees
Inquire about all the fees the bank requires you to pay for your foreign account. Also, check if the bank charges processing and handling fees on particular currencies or transactions.
Flexibility and Customer Support
A flexible foreign currency account allows account holders to deposit, transfer, and withdraw their money online, over the phone, or at a bank branch. As well, they should offer exceptional customer service 24/7.
Currency Exchange Charges
Any time you convert your money from one currency to another, your bank might charge a fee. Since banks have different charges, comparing their conversion charges makes sense. It will help you select the most affordable option.
Minimum and Maximum Transfer Amounts
What is the minimum or maximum amount of money you can transfer using your foreign currency account? Transaction limitations usually vary by bank. So you must ensure that your account limits can handle all your payment amounts.
Before selecting a foreign currency account, you must ensure that the turnaround speed for transactions meets your needs. Find how long a transaction takes to be complete when you transfer money from your home bank to your account overseas.
Pros and Cons of Opening a Foreign Currency Account in Canada
There’s no doubt that a foreign currency account is the most convenient solution for any person who frequently sends money overseas. However, it also has a few drawbacks.
Advantages of a Foreign Currency Account
Here are the reasons it makes sense to open a foreign currency account.
Supports Multiple Currencies
With the help of a foreign currency account, you can send or receive funds in different currencies without paying high charges for exchanges between them. For that reason, you should open a foreign currency account that allows transfers of multiple currencies.
Offers Interests On Your Currencies
Some foreign currency accounts will pay you interest on specific currencies kept in your account. However, international banks offer interest in tiers, and currency accounts with bigger balances usually enjoy better rates.
Allows Flexibility to Get Better Exchange Rates
You can leverage exchange rates with a foreign currency account to take advantage of the best exchange rates. If a specific currency is stronger than the rest, you can use it in most of your transactions. It will help you save money if you conduct large transactions.
Provides Overdraft Protection
If you are unsure about the timing of your foreign currency payments, many banks will offer you an overdraft on particular currencies. However, you need to be aware of the overdraft fees. Ask the bank that hosts your foreign currency account about the costs.
Some banks or financial institutions may offer foreign currency account holders waivers for maintenance and other monthly fees. However, the number of waivers will depend on the type of business you run.
Disadvantages of a Foreign Currency Account
Here are a few drawbacks of a foreign currency account.
High Minimum Requirements
Some banks may require you to maintain a specific minimum every day, and failure to do that may attract more fees. Thankfully, international banks like HSBC don’t require clients with foreign currency accounts to maintain minimums.
When you open a foreign currency account, expect to pay charges like overdraft and cash handling fees. Such fees can increase your banking costs significantly. That said, it would be best if you choose a bank with the lowest charges.
Now that you understand how a foreign currency account works, you can get started on opening an account. You will need to provide your basic personal and financial information. Please don’t forget to provide your government-issued ID.