Foreign currency saving: Norway or the highway

December 25th, 2009 by Philip Brasor & Masako Tsubuku

Here's a pretty picture of Bergen while you think about opening a Norway kroner savings account

Here’s a pretty picture of Bergen while you think about opening a Norway kroner savings account

As you undoubtedly know, keeping your money in a regular savings account in a Japanese bank is as fiscally productive as stuffing it in your futon – or keeping it in your tansu (wardrobe), as the locals like to say. In fact, with interest rates near zero, you’d actually make more money keeping your money in your futon if the inflation rate was bigger than the interest rate, but with deflation as it is right now that isn’t going to happen.

Zero inflation has been a fact of Japanese banking life for longer than I care to remember, and one of the alternatives is foreign currency savings accounts. Back in 2004 we stashed a couple of million yen we received after cashing in our miserable insurance policy from then defunct Chiyoda Seimei (lost on that one) into a Citibank savings account in Australian dollars. At the time the interest rate was 4 percent and the exchange rate was ¥82.14 to one Australia dollar. The maturation period was one year, but each month you could extract whatever interest you made that month and turn it back into yen. The sticking point is that the exchange rate was fluctuating, so if the Australian dollar went up, you could make a little money, but if it was going down, you might want to wait until it bounced back.

Well, we waited . . . and waited and waited. During most of 2004, the Aussie dollar fluctuated between ¥74 and ¥79. By the time the account matured in February 2005 it was back to about 81. With the loss in the exchange rate and the accumulated interest all factored in, when we converted the money in the account back to yen, we ended up with just a little more than what we started with. One reason is that you don’t really get ¥81, because Citibank takes one yen on each Australian dollar as a handling fee.

Obviously, our timing wasn’t very good, and several months after we made the Australian dollar account, the last installment of “The Lord of the Rings” won the Best Picture Oscar and the New Zealand economy was booming. As we watched the exchange rates every week and saw the Aussie dollar dipping below what was acceptable for us, we also noticed the New Zealand dollar rising. So after we cashed the account, we split the money into two accounts, one Australian dollar and the other New Zealand dollar. The idea was half OK. The Australian dollar started at about 82 and after a year ended up a bit higher. Again, we didn’t make that much money (the interest rate was 4.2 percent), but if we had maintained the previous account instead of cashing it in, we would have made more money.

But it was the New Zealand account that really bombed. We started the account (5.4 percent interest) at ¥75.6 to the NZ dollar and a year later it had dropped to 70, which meant even with the interest we would have lost money, so we kept the account going . . . and we still have it four years later. The New Zealand dollar is presently around 64 yen.

So now we’re thinking of opening a Norway kroner account, mainly because the kroner is one of the very few currencies whose value hasn’t dropped relative to the yen since the Lehman Brothers shock (or, in Aso-speak, the “Rubin Brothers shock”), which would seem to indicate it has some stability; and, in fact, the Norwegian economy hasn’t done that poorly during the worldwide recession. We were there last spring and housing prices were quite strong. The government is even worried about inflation.

Citibank is now offering several new foreign exchange savings plans, including Norwegian kroner and the South African rand. One of the main incentives is that the handling fee is reduced to ¥0.5 or ¥0.2 depending on how long the saving account period is. If it’s a year the handling fee is waived, but, of course, that’s a bit misleading. After all, the bank makes money on foreign currency savings accounts when you make the exchange. The bank currency rates are always a bit higher or lower than the going rate, depending on whether you’re buying or selling. And one thing you have to keep in mind with currencies like the kroner or the rand is that their absolute values are less than many other currencies – right now about 15.5 and 11, respectively. That means, when the bank charges a handling fee, they charge ¥0.2 or ¥0.5 for each kroner or rand, which means they make more money on those currencies than they would on euros (130) or dollars (90).

The thing with foreign currency savings acccount is that you have to always start with yen and end with yen. Once, when we were about to travel to New Zealand for a vacation, we asked Citibank if we could withdraw some money from our NZ dollar account to use on our trip and were told that it couldn’t be done. (We’ve since found out that it is possible, but apparently is more trouble than it’s worth.)

But our advisor at Citibank suggested that we buy Australian dollars with U.S. dollars, since we also have a U.S. dollar account. She said the exchange rate between the two is more favorable than it would be if we bought Australian dollars with yen, and when we asked how the handling fee would be done, she said she’d make the exchange by calculating it in “the equivalent amount of yen,” so obviously Citibank will get its money no matter what you do. But that’s not what made the U.S.-to-Australia dollar deal attractive. When we opened the U.S. dollar account, the U.S. dollar was ¥113.

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3 Responses

  1. Thanks for the personal story on trying to earn a higher interest rate in another country. Sounds like you kept coming up on the short end of the currency fluctuation risk.

    Hope you do better with the kroner.

    If I remember correctly, most millionaires in the U.S. made their money by investing in real estate, and working with their investments hands on.

  2. Excuse my frankness, but you have to be really a little on the stupid side, if you do business with Citi…
    Banks are not there to help you earn money, they are in the business of earning money for themselves FROM your money.
    So, unless you happen to have insider knowledge, forget it! It might be illegal, but if you want earn money in today’s finance world, the this should not bother you.

    Welcome from the real world, John Grey

  3. Making money from foreign currency deposit accounts is not really heavily profitable as you yourselves experienced. Otherwise, if it is, hordes and hordes of investors could have done it, including myself. Nice story, though. Thanks

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