Placing Foreign Currency Fixed Deposits

Many people came to ask me, from the young to the old, what are the pros and cons of placing foreign currencies. It is understandable because currencies like NZD and AUD are giving 6-8% pa which are much higher compared to our pathetic SGD fixed deposit rates.

I always tell the story of 1 year ago when NZD/SGD was at 1.1758. Today, it is fluctuating around 1.0300 to 1.0400. Effectively it has gone down by 12% while the interest was say 8.5%. So is it really worthwhile?

When we place any foreign currency with a bank, we are subjected to the bid and offer prices. These prices are engineered to be lower and higher than current spot rate always. For example, if current spot rate of NZD/SGD is 1.04, banks will usually sell higher at 1.06 and buy back at only 1.02, which means you get charged whenever you buy or sell the currency. So when customers ask me, I always tell them that putting in foreign currency is like buying a unit trust. The exchange rate fluctuates which affects your capital, and also comes with sales charge when you buy or sell.