Our world is becoming increasingly smaller and more interconnected, thanks to technology. From the days it allowed us to connect with our loved ones on the other side of the globe to giving us the possibility of purchasing goods and services from different corners of the world.
But, there is still one pain point.
For a variety of macro and microeconomic factors, most countries (excluding blocs) only transact in their local currency and have a central bank to manage the currency. For these same factors, cross-border transactions remain a predominant barrier to entry for international businesses.
Although not perfect, a multi-currency account, occasionally referred to as a foreign currency account, is a great solution as it chips some of the hassle and expense away. It streamlines the process of sending and receiving money globally.
In this article, we’ll break down everything you need to know about a multi-currency account, how it works, and whether you should open this type of account.
What is a multi-currency account (MCA)?
A multi-currency account is a type of checking account that allows you to send, receive, and store multiple currencies in one account.
In comparison with having to open and maintain multiple accounts overseas for each currency, a multi-currency account enables you access to all your currencies with one account. To be precise, this means one account number, one account holder, and one SWIFT code for all your currencies.
Because of its ability to retain multiple currencies at the same time, it often also comes with the option for users to convert between two currencies.
Today, most traditional financial services institutions, like banks, have their own versions of multi-currency accounts. Typically, these accounts will include major currencies such as the US Dollar (USD), British Pound (GBP), Euro (EUR), Singapore Dollar (SGD), Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD), Chinese Yuan (CNH), and Hong Kong Dollar (HKD).
FinTech companies, on the other hand, will offer the major currencies plus certain exotic currencies, such as the Indonesian Rupiah (IDR), Swedish Krona (SEK), and Norwegian Krone (NOK).
How does a multi-currency account work?
Fundamentally, a foreign currency account works the same as a standard bank account in which you’ll have access to the following:
- Making withdrawals
- Sending and receiving payments
- Access to funds via debit cards, electronic transfers, and wire transfers
- Earn interest on your balance
The difference between a multi-currency account and a traditional bank account is its ability to transact in different currencies.
This means, when you receive a foreign currency with a standard bank account, the incoming funds will be converted automatically into your local currency at the prevailing market rate and deposited into your account.
For instance, when a foreign client sends a payment of USD 50,000 to your Singaporean bank account, this payment will be automatically converted into Singapore Dollars (SGD) at the prevailing market rate before it reaches your account.
Whereas for a multi-currency account, let’s say you’re receiving USD 50,000 from a client, these funds will remain in US Dollars (USD) and will not be automatically converted into your local currency. This helps you avoid unfavourable exchange rates that would typically incur with a standard account.
Likewise, if you’re making a payment to a recipient whose account is denominated in USD, you can select and send your existing USD instead of sending your local currency and incurring a conversion fee.
However, in the same way a standard bank account works, there are also similar fees for a multi-currency account to look out for in the fine print. Typically, these would include account opening fees, transaction fees, monthly service fees, overdraft fees, and conversion fees.
Pros and cons of a multi-currency account
Multi-currency accounts are a great way to better facilitate payment processing with international counterparts while reducing administrative friction. Here are its pros and cons.
Advantages of a multi-currency account
- Manage foreign exchange (FX) easily – Convert between any two currencies at any time. That means, when the FX rates are favourable, you can convert and store the foreign currency. Vice versa, if the FX rates aren’t favourable, you’re not obligated to convert it to your local currency immediately. Either way, this helps to safeguard your profit margin instead of letting volatility erode it.
- Cost-effectiveness – The currency conversion fees on multi-currency accounts are typically lesser than standard bank accounts.
- Simplicity and convenience – No more juggling with different banks in different jurisdictions. With a multi-currency account, you’ll get all the currencies and balances on one dashboard. This makes accounting less demanding and promotes centralised housekeeping.
- Speed – Having an account with multiple currencies means you can make and receive international payments using local currencies and utilising the local payment networks.
Disadvantages of a multi-currency account
- Limited features – Due to the complexity of storing different currencies, the foreign currencies in a multi-currency account may not have access to the features that are typically available in standard accounts, such as cheque payments, investment plans, and loans.
- Low interest – Most foreign currency accounts have low to zero interest rates. Ergo, while you can hedge your funds against the volatility of currency rates, a standard bank account or a term deposit is still a better long-term option.
- Inaccessibility to cash – Multi-currency accounts is largely an e-banking service. That means most financial institutions do not accept cash deposits and withdrawals in foreign currencies.
Should you open a multi-currency account?
To put it briefly, multi-currency accounts help businesses save time, costs, and administrative effort during a global transaction that involves two or more foreign currencies. Breaking that down, this type of account is a great solution for businesses that:
- Trades internationally. Be it exporting, importing, or both;
- Operates a global business that sells goods and services in multiple currencies;
- Employs talents (permanent staff or freelancers) overseas, which would require sending money abroad;
- Are partners with international suppliers or distributors.
Wallex’s multi-currency wallet
One account, one dashboard, 13 currencies. The Wallex multi-currency wallet is designed to streamline and simplify global transactions. This wallet enables you to manage and hold multiple currencies with one account while minimising the impacts of volatile FX rates. Plus, our competitive rates also ensure you can convert between two currencies at any time without breaking the bank.
Get started here!