The local time deposit interest rates have remained miserably low at around 3% or 4% (at the cost of locking it in for 24 months). The miserable interest it earns on your deposits doesn’t seem like a lot at all, considering that inflation is higher than the interest rates!
On the other hand, foreign currency time deposits have been boasting of interest rates of up to 7% p.a. for the Australian Dollar (AUD) account. However, the exchange rate of the AUD against the Ringgit is, at the moment, also one of the highest it has been for a while at a rate of approximately 1 AUD for RM3. The Ringgit has been weakening against the major currencies and I don’t forsee it strengthening so quickly, considering the current economic state. So, is it worth investing in foreign currency right now, considering that most currencies are at their peak? Find out more below.
It is always important to be mindful of the risks involved when considering a foreign currency investment. There are so many potential risks one needs to be mindful of being leaping into the foreign currency investment hype.
- Investment tenure – Foreign currency investment accounts only start becoming worthwhile if you are considering a medium to long term investment, that is, provided the currency doesn’t undergo a downward trend during the time of your investment.
- Market risk – Investing in a foreign currency essentially means you are investing into the local economy of that country. Not living within the economy you are investing in could pose some problems as you may not notice the small signals of distress the economy might be heading towards which will inevitably affect the currency.
- Exchange rate risk – Foreign currency accounts are high risk, hence the high reward compensation. The exchange fluctuations that occur can happen overnight and in many cases, the investor might not be able to draw their money on time before it depreciates due to the restrictions of the time deposit account.
- Interest rate risk – It is mindful to remember that the interest rate you are earning on your foreign currency account is not fixed and is always subject to change by the bank’s policies. Hence, seeing a high interest rate now may not necessarily remain and it becomes even more crucial then to assess if the interest you are getting will be sufficient to offset any exchange rate losses.
Do be careful to do your research before you invest and consider all angles. Most foreign currency investments here require a minimum of at least RM10,000 which is a lot of money for many people. It will be very painful to lose that money simply through a wrong investment decision!
If any of you out there have tried investing in a foreign currency investment, please do share your views and experiences