The Currency Challenge

As a globe-trotting expat you have many financial matters to monitor – particularly your taxes. But you must also cope with spending and saving in foreign currencies, writes Iain Yule.

The itinerant expat needs to juggle a number of currencies quickly, efficiently and cheaply. So a number of offshore banks have come up with accounts that allow varying degrees of flexibility in currencies management.

For the more adventurous expat, a sophisticated way to handle the foreign exchange question is to hold balances in a range (or, basket) of currencies, based in bank accounts.

The clever part is to convert whichever currency is offering the most attractive exchange rate at the time an item of expenditure arises.

If your bills are all in a weak currency and you pay them from a strong currency, you inevitably improve your cash flow. Of course, the flaw in this approach is that it is very difficult to predict the relative movements of currencies.

Currency values react to many factors, all out of your control, such as international politics, the price of oil, terrorist activity, relative strength of economies, and interest rates. So, even if you are holding a basket of currencies from which to meet your outgoings, you should still keep some money in each of the currencies in which you have liabilities. This helps you to avoid the risk that none of the exchange rates will be in your favour when you have to make a conversion.

Those who play the foreign exchange markets for profit tend to be high-rolling risk-takers playing with money they can afford to lose. But the ordinary expat should still keep on an eye on opportunities to maximise holdings in strong currencies rather than weak.

Beyond the simple foreign currency bank account – which should be your first port of call – a few offshore banks offer multi-currency accounts. With these, funds are held in one currency, usually dollars, sterling or euros, but cheques can be written in a range of other currencies to cover commitments in other parts of the world. A debit card may also be provided. These services can be very useful for the truly internationally mobile.

These accounts may require you to hold a high minimum balance and some may require a monthly fee.

Specialist Foreign Exchange

When it comes to that really big spend abroad – such as putting down a deposit on a property or paying a mortgage – it profits to look beyond simple transfers from your own bank. The UK’s retail banks tend to be expensive and sometimes very slow in transferring money internationally.

So a number of specialist currency exchange and transfer organisations have sprung up to cater for the thousands of Britons buying foreign property or transferring money abroad for other reasons.

They all compete on price and keenness of exchange rate, so it is worth shopping around among them to find the best deal. They will also facilitate the transfer of regular payments home, usually free of charge. You can even lock in an exchange rate which you think is particularly in your favour.