Banking on a foreign currency account
An offshore stash of foreign currency cash can take the uncertainty out of what a trip abroad will end up costing you
The rand is volatile, being at the mercy of many factors, and its depreciation can play havoc with an overseas holiday budget, the funding of children's studies abroad or any other foreign currency need you may have.
This year the currency has touched highs of around R12.40/$ and lows of around R14.20/$. Even though at the end of October the rand was showing a depreciation of only 2.4% for the year to date, the depreciation could have been more severe during the year, depending on when you needed the money.
Daniel Buntman, head of international banking at Absa Retail and Business Banking, says it makes sense to allocate some savings to the foreign currency you anticipate needing to cover future expenses.
A Business Times Money survey of the foreign currency accounts offered by the big four banks, Absa, Standard Bank, Nedbank and First National Bank, shows that the type of foreign currency account available depends on how much money you have to save and what your needs are.
You can choose between a foreign currency account domiciled in South Africa (your money stays in the country) or an offshore-held bank account with full transacting functionality and offshore loan options.
Foreign currency investments based in South Africa are relatively quick and easy to open and have no or low minimum investment requirements. However, they typically have limited transaction capabilities.
You cannot use the local accounts to make purchases or to draw cash from while travelling abroad. Some banks offer a linked travel card that you can use for this purpose while travelling and into which you can transfer foreign currency before you leave.
Foreign currency accounts for money you take offshore are typically offered under the banks' offshore banking licences in jurisdictions such in the Isle of Man, or Guernsey in the Channel Islands.
To open one of these accounts you will have to meet a representative of the bank and the process can take up to two weeks. Online applications may be possible if you are already a client of the bank.
Some banks require substantial minimum balances for these accounts.
For instance, you need a minimum balance of A$60,00 or £4,000 or $6000 or €6,000 (roughly between R60,000 and R100,000) to open Standard's Bank's Optimum account.
The minimum for Nedbank's Focus account is the foreign equivalent currency of R1-million. Although First National Bank's Channel Islands investment accounts do not require a minimum, you will not earn interest if your balance is below £2,500 (R46,000).
Unlike South Africa-based accounts, the foreign-domiciled accounts can be opened by more than one person. Spouses or partners can therefore each use their R1-million offshore discretionary allowances to fund a single joint account to make up the minimum balance required by some banks.
The offshore-domiciled accounts are typically aimed at investors and they also usually offer the full range of transactions, such as third-party payments, withdrawals from ATMs in foreign currencies via a Mastercard or Visa debit card and purchases directly from the account while abroad.
If you make a withdrawal in a currency that is different from that held in the account, foreign exchange fees will apply.
Some, such as the Standard Bank Optimum account, allow payments in both the currency of your account and other currencies and transfers between your domestic and international accounts using the bank's mobile app.
South Africans with FNB Channel Islands accounts can link these to their local FNB South Africa banking platform to view all accounts from a single platform.
At the moment Absa is not marketing its offshore bank account, which was offered in association with Barclays PLC, due to the fact that the two banks are parting ways.
For local transactional savings accounts and for call and fixed deposits in a foreign currency, there are no monthly fees. For offshore accounts, cash withdrawal fees may apply, although swipes in stores internationally are free unless in a currency that differs from that in which the account is held.
Nedbank and Standard Bank's offshore accounts offer loan facilities, for example to purchase a property in the UK or to invest in an international portfolio.