This article was written in collaboration with DBS. Views expressed in the article are the independent opinion of DollarsAndSense.sg
(Editor’s Note: We’ve updated this article on 08 April 2019 to reflect changes to amounts insured under SDIC)
We have written quite extensively in the past about the usefulness of having a Multi-Currency Account. For a start, if you are a frequent traveller like our writer Dinesh, then a multi-currency account can also help you save money when you are spending overseas.
Just recently, Dinesh put this theory into practice during his trip to Europe, where he deliberately tried to pay for his overseas spending through all sorts of methods, including using his DBS Multi-Currency Account, and you can read about his experiences and learnings here.
However, it’s not true that only frequent travellers or online shoppers will benefit from having a multi-currency account.
If you are an investor who regularly invests in overseas stock markets such as the U.S., the U.K., Eurozone, or Hong Kong, then an account such as the DBS Multi-Currency Account will be a very useful tool to have.
The Challenges Of Investing In Overseas Stocks
Investing in overseas stock markets means having to invest in assets that will be priced in foreign currency. If you buy stocks such as Apple, Tesco, or Tencent, you will need to pay for your investments in foreign currencies such as the US Dollar (USD), Sterling Pound (GBP) or Hong Kong Dollar (HKD).
This means on top of ensuring that the companies make for good stock investments to begin with, you also need to make sure that you are getting an attractive exchange rate for the currency they are trading in.
For example, you may think that Apple stocks are good investment currently at USD 180.00. However, while the stock price, which is quoted in USD, may be attractive, you may find the current exchange rate, at USD 1 to 1.37 SGD, slightly high, compared to the exchange rate earlier this year, at USD 1 to 1.32 SGD.
Here’s a simple example to illustrate how exchange rate can make a significant difference to our overseas investments.
|Date||Apple Stock Price (USD)||Exchange Rate (USD/SGD)||Apple Stock Price (SGD)|
|2 Jan 2018||USD 172.26||1.33||S$229.11|
|29 June 2018||USD 185.11||1.36||S$251.75|
Source: Google Finance
If you based your investment purely on price alone in USD, you would think that you are paying just 7.5% more for your Apple stocks in June 2018 (USD 185.11), as compared to buying it in January 2018 (USD 172.26).
However, if you also take into consideration exchange rate fluctuation since the beginning of the year, you would notice that the USD has appreciated against the SGD since the start of the year. This means you would be paying about 9.9% more for your Apple stocks in June (SGD 251.7), as compared to buying it in January (SGD 229.11).
Traditional Brokerage Platforms
If you do not have foreign currencies to access readily, some brokerages offer the option of settling your foreign market trades in SGD. However, you should check if the forex rate you are getting is based on the current market rate.
When you buy an overseas stock and choose to pay in SGD, the brokerage firm converts all costs involved in trade from foreign currency to SGD, at the current exchange rate. This means that if the current exchange rate between foreign currency (e.g. USD) and local currency (i.e. SGD) is at a historical high, this might erode the returns you could receive from your overseas investments.
Another option would be to convert SGD to foreign currency beforehand when the rate is favourable, and place that money in your investment account. However, in many brokerages, no interest is paid on monies held in the investment account.
The Solution: DBS MCA + DBS Vickers Account
DBS Vickers is a securities brokerage firm, and a wholly owned subsidiary of DBS bank. It allows you access to 7 key global markets including the U. S., the U.K., and Hong Kong.
When you trade these overseas markets, you will need to pay for the stocks that you buy in foreign currencies. A DBS Multi-Currency Account will enable you to conveniently settle the trades in foreign currencies, at a favourable exchange rate that you have chosen earlier. Hence, you can 1) make the foreign currency conversions when the rates are favourable to you and then 2) invest in the stocks when the prices are attractive.
Source: DBS MCA
DBS currently has a promotion where you can earn 2.50% p.a. interest for 4 months on your USD Fresh Funds with its DBS Multi-Currency Account. All you need to do is to register online and deposit fresh funds of at least USD 10,000 by 31 August 2018, and you can start accumulating interest from September to December. If you were to convert fresh SGD to USD, you will also get a S$25 FX rebate.
This way, aside from being able to receive a favourable exchange rate for the USD that you may need for your future stock investments, you also get to earn attractive interest on your USD today. All this while, you will be utilising a multi-currency account with a brand that you are already familiar with.
Do note that to be eligible for the 2.50% interest, you must maintain the USD fresh funds in your account from 1 Sept – 31 Dec 2018. To find out more, visit the DBS website.
*SGD deposits are insured up to S$75K by SDIC.