In today’s interconnected global economy, investors and businesses increasingly engage in cross-border transactions. However, foreign exchange (FX) fees—often ranging from 1% to 5% per transaction—can erode returns and inflate costs. Multi-currency investing offers a strategic solution to mitigate these fees while enhancing portfolio flexibility. Below, we explore how holding multiple currencies can streamline international investments, reduce costs, and improve financial outcomes.
Multi-Currency Accounts: Eliminate Unnecessary Conversions
Multi-currency accounts allow investors to hold, manage, and transact in multiple currencies without frequent conversions. By maintaining balances in target currencies (e.g., USD, EUR, GBP), you bypass costly FX fees when making payments or trades in the same currency. For example:
- Airwallex’s Global Accounts enable businesses to collect and spend in local currencies, avoiding forced conversions by traditional banks .
- Interactive Investor (ii) offers trading accounts where investors can hold nine major currencies, trade directly in the asset’s original currency, and reduce FX charges (as low as 0.25% for large conversions) .
- Bancoli’s Global Business Account supports 11 currencies, allowing companies to leverage stable currencies and access real interbank rates
Key Benefit : Reduced exposure to volatile exchange rates and cumulative conversion fees.
Currency-Hedged ETFs: Automate Risk Management
Exchange-traded funds (ETFs) that hedge currency risk provide a hands-off approach to multi-currency investing. These funds use derivatives like forward contracts to lock in exchange rates, shielding investors from adverse fluctuations. For instance:
- Currency-hedged ETFs (e.g., those tracking foreign stocks) mitigate FX volatility by predetermining conversion rates, though they require periodic contract renewals .
- Multi-currency ETFs diversify holdings across strong economies, spreading risk and minimizing reliance on a single currency .
Pro Tip : Pair currency-hedged ETFs with passive income streams (e.g., dividends in local currencies) to further reduce conversion needs.
No-Fee Financial Tools: Optimize Transactions
Selecting the right financial instruments can eliminate hidden fees:
- No-Foreign-Transaction-Fee Cards : Credit/debit cards like Wise Multi-Currency Card and Revolut allow spending in local currencies with mid-market exchange rates, avoiding markups .
- Prepaid Travel Cards : Load funds in advance at favorable rates (e.g., Travelex Money Card) to avoid dynamic currency conversion (DCC) traps .
- Corporate Solutions : Platforms like J.P. Morgan’s Multi-Currency Notional Pooling centralize liquidity across currencies, reducing physical conversions and bank transfer costs .
Avoid DCC : Always choose to pay in the merchant’s local currency to bypass inflated rates set by third parties .
Strategic Timing and Consolidation
FX markets are dynamic, and timing conversions can yield savings:
- Monitor Exchange Rates : Tools like XE Currency App provide real-time rate alerts, enabling conversions during favorable windows.
- Bulk Conversions : Consolidate transactions to minimize frequency. For example, converting $100,000+ with ii incurs only 0.25% fees vs. 1.5% for smaller amounts .
- Forward Contracts : Lock in rates for future transactions, ideal for recurring payments like overseas payroll .
Diversification : Spread Risk, Reduce Dependency
Holding a basket of currencies mitigates reliance on any single economy:
- Invest in countries with strong growth indicators (e.g., GDP, low inflation) to capitalize on appreciating currencies .
- Multinational Corporations : Stocks like Johnson & Johnson or ETFs tracking the S&P 500 provide indirect exposure to global revenues without direct currency holdings .
Added Perks : Some platforms, like ii, pay interest on idle balances in GBP, EUR, or USD, enhancing returns .
Challenges and Considerations
While multi-currency investing offers advantages, consider:
- Regulatory Limits : ISAs (UK) and certain accounts restrict foreign currency holdings, necessitating conversions at trade execution .
- Liquidity Management : Automated tools (e.g., J.P. Morgan’s liquidity solutions) help optimize idle cash across jurisdictions .
- Market Volatility : Geopolitical events and interest rate changes can still impact currency values, requiring active monitoring .
Building a Cost-Efficient Global Portfolio
Multi-currency investing is no longer a niche strategy but a necessity for savvy investors. By leveraging multi-currency accounts, hedging tools, and no-fee financial products, you can slash FX fees, enhance liquidity, and capitalize on global opportunities. Whether you’re a frequent traveler, international business, or passive investor, adopting these strategies ensures your money works harder unburdened by unnecessary costs.