Today, I reply to a pair of inquiries related to the same theme: investing savings in accounts abroad.
Dear Dr. Don,
Banks in the United Kingdom -- for instance, the ING Direct branch that operates in Great Britain and Northern Ireland -- offer a savings account that pays 6 percent interest. In the United States, it is currently at 3 percent. Meanwhile, the U.S. dollar value is declining against the euro.
I am considering opening a savings account with ING Direct in the United Kingdom. Is it good idea? Is it allowed for U.S. citizens and residents? Is there an equivalent of the Federal Deposit Insurance Corp. in the United Kingdom? Would it be a problem when I bring the money back into the United States?
-- Lawrence London
I didn't know the answer to your question, so I asked Martin Rutland, head of corporate communications at the United Kingdom branch of ING Direct.
He told me that you have to be a resident of the United Kingdom to have an ING Direct account through the branch of the bank based in Great Britain and Northern Ireland.
An alternative to sending your dollars abroad is to invest in nondollar-denominated deposits in a U.S. bank. Your deposits can be FDIC-insured against a bank failure, but an insured deposit isn't protected against the loss of principal resulting from currency exchange risk.
EverBank is known for this type of deposit. They have checking, savings and CD accounts available where the funds are held in a foreign currency -- or, for investors who like to diversify, a basket of foreign currencies.
They do charge up to 1 percent over the wholesale rate for currency exchanges. Given the wider range that exists in most retail exchange rates, I don't think that it is excessive, but Ken Currency, the reader in the following letter, does. Read my reply to Ken for some additional background.
Dear Dr. Don,
With respect to FDIC-insured foreign currency CDs, you mention EverBank as one of the U.S. banks offering such CDs. Please tell me the names of other banks offering FDIC-insured foreign currency CDs.
I'd be investing $150,000. I feel that EverBank's currency exchange charges are excessive -- 0.75 percent in and 0.75 percent out. That's a total of 1.5 percent round trip.
-- Ken Currency
I remembered EverBank's exchange rates as the 0.75 percent "in and out" that you describe, but its Web site now states:
Exchange rates are determined at the time of the actual trade and not at the time of the transaction request. The exchange rates listed on EverBank.com are for research purposes only and do not reflect rates and costs at the time of the trade.
When a currency trade is implemented, EverBank will convert your funds using a then-current conversion rate set by EverBank. Your currency conversion rate will be within 1 percent of the wholesale spot price EverBank pays for your currency. Exceptions may occur when a specific conversion rate is agreed upon between you and EverBank.
So, you've got the ability to negotiate with EverBank on what you pay on the currency exchange. For a depositor with $150,000 to put to work, you should be able to come to terms even though this is still a retail transaction. If you can get a better exchange rate from another provider, discuss the option of depositing the money as foreign currency.
An earlier column, " Depositing euros in a U.S. bank," explains this option in greater depth.
EverBank isn't the only game in town. A Web search using "foreign currency accounts" will allow you to find other providers that also offer FDIC-insured foreign currency deposits.