Foreign currency cash deposit rates

[JR8]

I'd like to address a comment that WD40 made in another topic:
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'I wouldn't change the way I live, just to get PR. The only change I did, when I was applying for PR, is that I stopped remitting my S Dollars to India for the last couple of years, thinking that having a good bank balance will help. But in hindsight that was a blessing in disguise as the INR just depreciated more than enough to cover the investment gains I would have made, if I had remitted them'.
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This is a common misconception that I expect some of us find a surprise, as we don't understand the derivation of a deposit interest rate, versus an fx rate. I also did not understand it, until I worked in an FX trading group, and had to understand the derivation of 'forward FX rates'. Hence why I imagine it is a mystery to many people esp those not working in FX pricing, in a bank...

So, you make a 12 month deposit in S$ and just say it pays 0.25%, pretty crappy eh?
Or, you see a Malay bank offering 3% on MYR for the same term
And then an Indon one paying a thumping 10%!?

Isn't it clear where to put the money? Convert S$ to IDR, and get 10% right?

Wrong.

In general terms the forward FX price models the expected relative value in the future between your base and invested currency, and rewards you for relative depreciation (as is typical vs the S$) via a higher headline interest rate. So...

Indon 10%, vs 0.25% for S$, because the traders pricing model predicts the IDR will have devalued about 9.75% against the S$ in 12 months time. I.e. you gain on the 'high headline interest', but when you convert the IDR back after 12 months, you lose say 9.75% (assuming the modelled forecast plays out, it could of course be randomly better or worse) on the relative FX swing.

Motto of the story.
Don't be fooled by headline high interest rates for foreign currency depos. They are only highlighting the one seemingly attractive side of a 2+ sided complex equation. The overall net-net picture is usually far less appealing, if it is appealing at all.

It is an investment maxim, that often the best return you can get from cash, is from paying down your own debts. Yes, as simple as that! Start with those with the highest % rate (credit cards?), and work down (mortgages?).

What you get charged in interest on such loans is usually materially higher than what you'll ever earn from investments/deposits. And you pay less tax on any deposit income, AND pay less interest on outstanding loans ... it is a double-bonus. It's not an approach you'll see promoted, as no company has a financial interest in doing so (quite the contrary) ... hehehe.... evil bloody bankers

[zzm9980]

Slightly related -

I need to move a large amount of USD the Singapore. My assumption was to move the money from USD in the USD to a USD in Singapore would be the best (most cost effictive) way of doing it, short of carrying cash(*)in my carry-on on a flight. It's too much cash to fit in pocket(s), and just enough that it would probably show up during the x-ray of my carry-on.

So anyway, I asked some people candidly about the best way. Someone from OCBC confirmed this isn't a good idea for me, as their bank would charge a massive fee on the fx conversion later. I was told to go to a US bank like Citibank for it, because maybe they'd let me withdraw the money in USD while in SG. (OCBC wouldn't).

I went to Citibank, thinking I could use their Global transfer to a USD account here. Long story short, I wouldn't be able to get the money out in USD. I'd have to move it to an SGD account, and they'd charge a significantly higher FX rate on that than if I just used global transfer to move it from USD to SGD account here directly.

I'm open to suggestions if anyone has one, otherwise I'll just take the hit on the Citibank transfer from US to SG.

* Using this (I think from Naka) to judge the size:
http://demonocracy.info/infographics/eu ... piigs.html

[PrimroseHill]

WD40, I believe as Citigold customer you are given preferential rates. I moved GBP & USD earlier this year from RBS to Citi- RBS GBP and RBS USD to Citi GBP and Citi USD. The only payment I had to make was the SWIFT/CHAPS transaction fee. I didn't incur an fx charges as it was from a USD account into another USD and GBP into another GBP account.
Then I opened another time deposit/premium account for both USD and GBP- this is, so that I can place any time limit and spread limit when I want to sell or buy more USD and GBP. So far Citi has been more competitive compared to OCBC.

[PNGMK]

Good advice JR.

Secondly only but stocks that have consistently paid dividends (> 3 yrs) with a safety net to continue to do so (payout ratio is <80%), that have increased dividend payouts and are in an industry that is not going into the sunset. You'll beat bank deposit rates every time, furthermore if you're in a country such as Australia that provides franking credits you'll be even better off tax wise.

[Wd40]

JR8, its not that simplistic.

Basically interest rates in a country is not just related to its FX outlook. Its also related to inflation and a whole lot of other factors. Its true that central banks try to keep rates high if there is depreciation pressure on the currency like in case of IDR and also they try to keep rates near 0 if there is too much appreciation pressure on the currency like in case of Swiss Franc. But its not exactly linear year after year and there are exceptions.

Are you trying to say that IDR will surely depreciate 10% next year?Take the USD interest rate for example. USD offers better interest rate than SGD isnt it? Will USD depreciate next year against SGD? What about Japanese Yen interest rates? Japanese Yen will depreciate next even though the deposit rates are 0 or may be negative.

Its true that the last 4-5 years have been terrible for emerging market currencies due to quantitative easing, current account deficits etc. But currencies are also sentiment driven and my take is the depreciation has been overdone

Also SGD had this safe haven appeal to it. My take is with the fall in exports MAS may actually let SGD depreciate a bit.

[Beeroclock]

Slightly related -

I need to move a large amount of USD the Singapore. My assumption was to move the money from USD in the USD to a USD in Singapore would be the best (most cost effictive) way of doing it, short of carrying cash(*)in my carry-on on a flight. It's too much cash to fit in pocket(s), and just enough that it would probably show up during the x-ray of my carry-on.

So anyway, I asked some people candidly about the best way. Someone from OCBC confirmed this isn't a good idea for me, as their bank would charge a massive fee on the fx conversion later. I was told to go to a US bank like Citibank for it, because maybe they'd let me withdraw the money in USD while in SG. (OCBC wouldn't).

I went to Citibank, thinking I could use their Global transfer to a USD account here. Long story short, I wouldn't be able to get the money out in USD. I'd have to move it to an SGD account, and they'd charge a significantly higher FX rate on that than if I just used global transfer to move it from USD to SGD account here directly.

I'm open to suggestions if anyone has one, otherwise I'll just take the hit on the Citibank transfer from US to SG.

* Using this (I think from Naka) to judge the size:
http://demonocracy.info/infographics/eu ... piigs.html

hi zzm, usually online fx transfers companies are much more efficient than banks. I've never done USD to SGD, but for GBP/SGD/AUD transfers I've been using a company called Ozforex for 7-8 years now and they are very good. Depending on size, it is nil fee, and the spread on the rate is around 1% or maybe slightly better. Banks can charge a spread of 2+% as well as fees on top. If you use them, they will quote you a rate which if you're happy you lock in. After that you transfer they give you a USD account in US and you can do an online funds transfer. Then 1-2 days later they will deposit the SGD to your account here. You need to send some paperwork to get account set-up, passport page etc, to pass the anti-money laundering laws. It is a little bit of work but can save you a lot of money on the conversion. There are many other companies you could consider too, but personally I can vouch for Ozforex after using them reliably for a very long period. Hope this helps.

[Beeroclock]

The AUD is a classic where people try to have their cake and eat it. For many years when it was going for strength to strength and with 5+% yields as icing on the cake, so many were doing the "carry" trade. Using USD or Yen to buy up AUD and aiming to make money on both the exch rate and the yield. These things are great while they last but it has all come unstuck badly now as the AUD gravitates back to earth.

Where it can get even more risky, sometimes the banks also offer to convert your loans too. The amounts can be much bigger than deposits. e.g. for Australian expats in SGD, if you have an Australian mortgage, bank might offer to convert it to SGD so you can save huge amounts based on the interest rate differential (i.e. approx. 4% cheaper in SG than Oz). Of course the exchange rate exposure far outweighs the interest rate effect, but most people just hope it will stay the same or even move in their favour so they can win both ways. Not a good idea to take such huge risks with your equity, let alone your debt !!

Certainly it's a good point for people to be well aware of the risks they're taking when considering different currencies, it is more than just an interest rate effect!

[Wd40]

Agree with you BeerOClock. The risk involved needs to be kept in mind and if you are a Singaporean with S$s are your originating currency then it really doesnt make sense to go for AUD deposits, even if the currency is stable. Reason being you get hit twice by the currency conversion fees and both sides it is atleast 1% each, so net-net you make only 2% out of the 4% assuming that the currency is stable.

Most people who do this are speculators and they speculate on exchange rate going up, the interest rate differential is only a bonus.

My comment in the original post highlighted by JR8 was not related to make investment gains by converting to INR and then converting back to SGD. I am from India and just a foreigner here. Ultimately, I need to take my money to India and this remitting to INR is a one way thing.

[zzm9980]

hi zzm, usually online fx transfers companies are much more efficient than banks. I've never done USD to SGD, but for GBP/SGD/AUD transfers I've been using a company called Ozforex for 7-8 years now and they are very good. Depending on size, it is nil fee, and the spread on the rate is around 1% or maybe slightly better. Banks can charge a spread of 2+% as well as fees on top. If you use them, they will quote you a rate which if you're happy you lock in. After that you transfer they give you a USD account in US and you can do an online funds transfer. Then 1-2 days later they will deposit the SGD to your account here. You need to send some paperwork to get account set-up, passport page etc, to pass the anti-money laundering laws. It is a little bit of work but can save you a lot of money on the conversion. There are many other companies you could consider too, but personally I can vouch for Ozforex after using them reliably for a very long period. Hope this helps.

Thanks Beer, I'll check these guys out. Citi's rate (USD to SGD) is usually about a 1.5% spread whenever I've checked, so I'll compare the two and decide if the amount saved is worth the effort to use the other guys. (Citi's is instant).

[Beeroclock]

hi zzm, usually online fx transfers companies are much more efficient than banks. I've never done USD to SGD, but for GBP/SGD/AUD transfers I've been using a company called Ozforex for 7-8 years now and they are very good. Depending on size, it is nil fee, and the spread on the rate is around 1% or maybe slightly better. Banks can charge a spread of 2+% as well as fees on top. If you use them, they will quote you a rate which if you're happy you lock in. After that you transfer they give you a USD account in US and you can do an online funds transfer. Then 1-2 days later they will deposit the SGD to your account here. You need to send some paperwork to get account set-up, passport page etc, to pass the anti-money laundering laws. It is a little bit of work but can save you a lot of money on the conversion. There are many other companies you could consider too, but personally I can vouch for Ozforex after using them reliably for a very long period. Hope this helps.

Thanks Beer, I'll check these guys out. Citi's rate (USD to SGD) is usually about a 1.5% spread whenever I've checked, so I'll compare the two and decide if the amount saved is worth the effort to use the other guys. (Citi's is instant).

Pleasure, another one you might consider is DirectFX.co.nz

Agree it really depends how much you're transferring and if one-off or regular. But for large, regular amounts it's well worthwhile to do some research and make sure your costs/rates are competitive.

[JR8]

@ZZM
How large is large?
I posted previously about the issue I once faced flying London-Sin with a wedge of 200 banknotes on me. Alas I cannot find it. That certainly was identified from the hand-luggage x-ray.
- Hooked out of queue
- Asked a few questions right there (‘Is this yours?’ etc)
- Sent for ‘2ndary questioning’
-- ‘Is this yours, why are you carrying it, where is it sourced from, what do you intend to do with it, what do you do for a living (profiling)? etc
- Fill in form, and off you go.

The impression I get is there is no limit to what you can carry leaving the EU, but there’s a point where they want to know more about it. AND note they have a right to temporarily confiscate it if they don’t like your story.

I think there might also be a currency import limit at SIN, beyond which it’s Red Channel, and probably a similar kind of questioning.

p.s. Typical, after writing the above, I find the old thread now...
http://forum.singaporeexpats.com/ntopic92370.html

There used to be a bank here, last mentioned a few years ago I think, you could wire US$ to, and withdraw it here in US$... alas I have no idea now which one it was (and anyway, these kinds of rules always change)

I’ll tell you how I fund our rent and my expenses here. I send a Sterling wire from my UK High-Street current account, in Sterling to my local S$ POSB account. POSB then convert it on arrival, from Sterling to S$.
Last time I did this:-
The FX market (mid)-rate was 1.9683 (www.xe.com)
POSB converted at 1.9555
POSB charged a ‘Receipt fee’ of S$10

Market vs POSB spread = 1.28 cents (ignores precise intra-day timing)
I think that makes >= Home account wire fee + 0.6% FX cost on arrival, +S$10 receipt fee.

- Another comparator. The ‘serious’ money changer I’ve long used down at The Arcade, Sheen Intnl. His spread on Sterling today is 2.05/2.084
‘= 1.7 cents spread from the mid-point. Compare 1.28% vs 1.7%, a wire like mine worked out better than bringing it in cash and going to the Arcade.
http://sheen.sg/

[Maybe I had a lucky week, who knows. I’m not saying it’s always like that, but wanted to give it just as an example. Now, Sheen suggest you ask for a custom quote if you’re converting ‘in size’ so.... if you went and had a chat with one of the big guys at Sheen (or similar), and see what they had to say...
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PNGMK, yes that sounds a pretty similar approach to picking candidates for my own stock portfolio/pension. I use a strategy that I believe was pioneered on the financial self-help website ‘The Motley Fool’. It’s historically called the ‘High Yield Portfolio’. A slightly misleading name, as it helps one identify solid performing quality stocks, and certainly not simply super high-yielders. I imagine the selection strategy could be applied to any stock-market, not just the US and UK.
http://boards.fool.co.uk/faq-the-purpos ... 48855.aspx

p.s. Only key things I’d add (off top of head, I’m sure there are others)
- Do it as part of a diversified 20-30 stock portfolio, across the industry sectors, so it’s ‘’’internally self-hedging’’’ across the equities market.
- Invest and forget. Do not fiddle with holdings, or try and time the market. It is intended as a long-term self-accumulated pension.
- Reinvest all dividends
- etc etc. Anyway, if of interest see the above link for a clearer idea, that you can then simply consider or imitate yourself, in your own accounts.

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Thanks WD40, I appreciate it’s ‘not that simple’ But I was trying to give a comprehensible explanation of the broad way in which it works, (to an audience of whom many won’t have considered the concept before), rather than presenting a PhD thesis on it hehehe...

WD40
‘Are you trying to say that IDR will surely depreciate 10% next year?’

That's is not a sensible deduction to make. I wrote:
'In general terms the forward FX price models the expected relative value in the future ... because the traders pricing model predicts the IDR will have devalued about 9.75% against the S$ in 12 months time.

You seem to be veering off a little randomly there, so I left your post at that point.
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BeeroClock.
Agreed there are some good FX conversion companies. Getting the initial paperwork/account opened can be a pain. Worth considering if you expect to be doing the occasional large transfer/conversion.
I use www.xe.com for live market rates (have done for years). They appear to offer a retail trade facility http://www.xe.com/xetrade/ . No idea what it is or charges etc... but could be worth a look. At least on the quotes side, graphs, history etc., they’re a great resource.
There are of course several other offerings for people wishing to convert/tfr more material sums that say holiday money... just search...
p.s. Interesting your mention of loan conversion... it’s like the mirror image false-promise (?) of ‘depo conversion’.
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[Beeroclock]

You're brave carrying all that cash... I'd be worried about getting robbed!

[JR8]

You're brave carrying all that cash... I'd be worried about getting robbed!

It was in a zipped inside breast pocket of a 'light technical fleece' jacket that I did not remove on the flight. Additionally the zipper tab was safety pinned into the adjacent fabric.

Despite all of that, yes you're right, I doubt I'd go to the trouble again, it wasn't exactly stress-free. It was more of a case of 'Well, why can't I do this, I mean after all, it's my damned money!!?'

[ulu ulu]

How about carrying traveller cheques?

If I am not wrong, the exchange rate is not worse than currency and it provides additional security.

[Wd40]

JR8, Good time to invest in Rupiah!

http://www.bloomberg.com/news/2014-01-1 ... -asia.html