Unlock global opportunities - the benefits of multi-currency accounts for your business

Today’s interconnected world means more people are traveling and conducting business internationally.

With this increased global activity comes the need for convenient and cost-effective ways to manage multiple currencies.

Enter the multi-currency account.

This financial tool allows you to hold and transact in different currencies from a single account. Multi-currency accounts offer lower transaction fees and simplify foreign currency payments.

In this article, we’ll take a closer look at multi-currency accounts and explore their advantages and disadvantages for your business, so you can decide if this financial tool is right for you.

What is a multi currency account?

A multi-currency account is a type of bank account that allows you to hold and manage funds in multiple currencies.

Also called multiple currency, this type of account is useful for businesses that frequently make or receive payments in foreign currencies, to make management and conversion of funds across different currencies easier.

With a foreign currency account, you can hold funds in various currencies and transfer money between currencies without incurring significant conversion fees or losing money due to currency fluctuations.

Some multi currency accounts also offer additional features, such as foreign exchange hedging options to help manage currency risks.

How does a foreign currency account work?

Here’s how it works:

Choose the currency – Choose the currencies you want to hold. For example, you may want to hold US dollars, euros, and British pounds in your account.

Fund your account – Transfer funds from your domestic account or another source into your foreign currency account. This is done through wire transfer, online transfer, or other methods offered by the financial institution.

Hold your funds – Your funds are held in your account in the currency you chose. If you deposit US dollars, your account will hold US dollars.

Transact in foreign currencies – Transact in the currencies held in your account. For example, if you have euros in your account, you can use those funds to make purchases in Europe without incurring foreign transaction fees.

Convert currencies – If you need to convert your funds into another currency, you can do so through your foreign currency account. However, this may involve exchange rate fees and other costs.

Manage your account – Like any bank account, you can manage your foreign currency account by checking your balance, transferring funds, and monitoring transactions.

It’s important to understand how foreign currency account work and to keep an eye out for exchange rate fluctuations and fees for currency conversion and account management.

When does your business need a multi currency account?

A business may need a multi-currency bank account when they conduct transactions in multiple currencies.

See if any of these situations apply to your business to demonstrate how a multi-currency account can be beneficial for your business:

For international trade

If your business engages in international trade, you may need to receive payments in different currencies. A multi-currency account allows your business to hold and manage funds in different currencies, reducing the need to convert foreign currencies frequently and minimising exchange rate risks.

If your business has overseas operations

If your business has overseas operations, you may need to pay suppliers or employees in local currencies. A multi-currency account can help your business manage these payments more efficiently and cost-effectively.

If you have foreign investments

If your business invests in foreign markets or currencies, a multi-currency account can help you manage your investments and avoid currency conversion fees.

Your business conducts global eCommerce

If your business operates a global eCommerce store, you may receive payments in different currencies. A multi-currency account can help your business manage these payments and avoid high currency conversion fees.

A quick recap – a business may need a multi-currency account when they conduct transactions in different currencies to manage currency risks, reduce costs, and improve cash flow management.

What are the advantages of a multi currency account?

How can a multi currency account help your business? Glad you asked.

Multi-currency accounts offer several advantages, including:

Convenience – You can hold and manage funds in multiple currencies, to simplify your financial management if you frequently make or receive payments in foreign currencies.

Cost savings – Help you save on conversion fees and unfavourable exchange rates by allowing you to hold funds in different currencies and convert them when exchange rates are favourable.

Improved cash flow – By holding funds in different currencies, you can manage your cash flow more effectively, avoiding currencies conversion for each transaction.

Global transactions – With a multi-currency bank account, you can transact with suppliers, customers, and partners in different countries and currencies, making it easier to do business globally.

Hedging options – Some multi-currency accounts offer additional features such as foreign exchange hedging options, which can help you manage currency risks and protect against unfavourable exchange rate fluctuations.

This naturally leads us to the disadvantages.

What are the disadvantages of a multi currency account?

While multi-currency accounts offer several advantages, there are also some disadvantages to consider –

Fees – Multi-currency accounts may come with higher fees compared to standard bank accounts, including monthly account fees, transaction fees, and conversion fees.

Minimum balance requirements – Some banks require a minimum balance to be maintained in each currency, which can be difficult to manage if you have low transaction volumes.

Limited currency options: Not all currencies may be available to hold in a multi-currency account, limiting your options for global transactions.

Exchange rate risks: Exchange rates can fluctuate rapidly, and converting funds at unfavourable rates can result in losses.

Limited access: Some banks may only offer multi-currency accounts to high-net-worth businesses, limiting access to the service.

Which Australian banks have foreign currency accounts?

Most major Australian banks offer foreign currency accounts, including:

• Commonwealth Bank of Australia
• Westpac Banking Corporation
• Australia and New Zealand Banking Group (ANZ)
• National Australia Bank (NAB)
• Macquarie Bank

In addition to these major banks, there are also other financial institutions and online providers that offer multi-currency accounts. Some popular options include –

• TransferWise
• Revolut
• OFX.

Do some research and consider factors such as exchange rates, foreign currency options, transaction fees, account management fees, and ease of use to transfer money overseas when selecting a multi-currency account to find the best fit for your needs.

Additionally, it may be helpful to read reviews and compare customer experiences before making a decision.

How do you open a foreign currency account?

Opening a foreign currency account in Australia generally follows these steps:

1. Research financial institutions

Look for banks or other financial institutions that offer foreign currency accounts in Australia. You can check their websites or visit their branches to get information about their account features, fees, and requirements.

2. Choose the currency

Decide on the currency or foreign currencies you want to hold in your account. Most Australian banks offer foreign currency accounts in major currencies such as US dollars, euros, British pounds, Chinese yuan, Hong Kong dollars, and Japanese yen.

3. Gather required documents

Typically, you’ll need to provide business paperwork such as ABN, tax file number, and registered business address plus identification documents such as a passport or driver’s license. Some banks may also require additional documents such as tax returns or bank statements.

4. Open the account

You can usually open a foreign currency account online or by visiting a branch of the financial institution. Follow the instructions provided by the institution and provide the necessary information and documents. You may also need to make an initial deposit to activate your account.

5. Fund the account

Once your account is open, you can transfer funds from your domestic account or another source into your foreign currency account. This can be done through wire transfer, online transfer, or other methods offered by the financial institution.

Before opening an account, be sure to understand the fees, exchange rates, and other terms and conditions. It may also be helpful to consult with a financial advisor or tax professional to determine if a foreign currency account is appropriate for your needs.

What’s the Sleek scoop on operating multi currency accounts?

Operating a multi-currency account requires some specific strategies and considerations to maximise its benefits.

Here are some tips to successfully operate a multi-currency account and leverage its benefits to manage your finances more effectively across different currencies –

Choose the right provider

Research different banks and providers that offer multi-currency accounts, and compare fees, currency options, and features before selecting the right one for your needs.

Monitor exchange rates

Keep an eye on exchange rates and be aware of how they can affect the value of your funds in different currencies. Consider using tools such as limit orders or stop-loss orders to manage your currency conversion decisions and minimise risks.

Keep track of account balances

Ensure that you have enough balances in each foreign currency to avoid falling below the minimum balance and incurring fees.

Understand currency conversion fees

Be aware of the fees charged for converting currencies, and consider whether it is more cost-effective to convert currencies at specific times or to hold funds in different currencies.

Separate your business and personal funds

Keep your personal and business funds separate to avoid confusion and potential tax issues. Use separate accounts for different currencies and avoid mixing funds.

Utilise hedging options

Some multi-currency accounts offer hedging options to manage foreign currency risks, such as forward contracts or options. Consider whether these options are appropriate for your needs and whether they can help you protect against unfavourable exchange rate fluctuations.

Plan ahead

Consider your upcoming transactions and cash flow needs and plan ahead for foreign currency conversions or movements between currencies to maximise cost savings and avoid unfavourable exchange rates.

Ready to successfully operate a multi-currency account and leverage its benefits to manage your finances more effectively across different currencies?

Find out more from your Sleek accountant on +61 2 9100 0480 or use our chatbox.