Risk of Foreign Currency Fixed Deposit

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I am sure you have more than once been tempted to put your money into a higher interest foreign currency fixed deposit when you caught the attractive high interest rate when you stepped into a bank. Such investment is not as secured as its naming sound as a FIXED DEPOSIT. Always found out the fees/charges and know what you are investing. Never get overwhelmed by the Banker’s sweet talk and sign up right away.

I was quite tempted to buy into China’s RMB Fixed Deposit some time last year or so in 2015 or 2016 with Bank of China¬†as they are providing a very attractive rate of 3% – 4% for 24 months Fixed Deposit. Thankfully I didn’t pull the trigger as I was not sure what I was buying into. Today, I can write out the risk after that moments of research and moment of regrets if I had been impulsed.


01. Double charge for currency exchange

When you arrived at the bank with your SGD, the bank will offer you an unfavorable rate to convert your SGD into the foreign currency (let’s assume you are buying into China’s RMB foreign currency) to open a foreign currency fixed deposit. Upon maturity, the bank will earn *again* to convert your RMB back to SGD. As the results, the bank earn first from the currency exchange. This can get quite substantial because it affects every dollar, that you are exchanging. You are slap with not once, but twice of such unfavorable rate.

02. Risk of volatile currency

You need to do your homework. You need to know the economy of the country and what its imports and exports are. What is keeping their currency strong. Are there any upcoming plans that will likely keep their currency strong?

Some time last year in 2016, China’s RMB bloomed and the exchanged rate strength as high as RMB$4 = SGD$1. Everyone has confidence with China’s market. Least that we realised it will has weaken back to RMB$4.90 = SGD$1 today. If back then, I had invested with Bank of China’s RMB Time Deposit with a super high fixed interested of about 4.18% for 24 months, I probably would have suffered terribly. If I had invested SGD$10k, i would only get back SGD$8,163 due to the weaken of the currency (SGD$8,859 after 4.18% compounding interest per annum).

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