Avoid ATM Fees
If you enjoy the convenience of using ATMs but you hate the fees, open an account with an online bank like Ally or a small bank like First Republic Bank (San Francisco Area). These banks will reimburse any fees you are charged. You will be able to use any ATM around the world for free. Make sure you keep the minimum required in the account. You will want to keep an account at a local bank or credit union so you have a “physical location” for transactions that are difficult to do online. ATM fees are heading higher.
Foreign currency CDs
Everbank offers Certificates of Deposit (CDs) in foreign currencies. I believe it is the only bank that does this in the US but I am not exactly sure. In any case, foreign currency CDs can play an important role in some portfolios. These accounts are insured against default but not against currency risk. What does that mean?
Let’s look at an example. Let’s say I purchase a $1,000 CD denominated in Brazilan Real for 1 year at 5% interest. The bank will convert my dollars to real by using the current exchange rate. So if on the day I purchase the CD the Real is trading at $0.50 (or 50 cents) then $1,000 * 2 = R2,000. So my CD will have 2,000 Real. A year later the CD will mature and be worth R2,000 + R100 in interest = R2,100. But, I need to convert these Real to US dollars if the exchange rate is the same I will have $1,050. If the Real has appreciated to $0.60 then R2,100 * 0.60 = $1,260. That’s a 26% increase. On the other hand if the Real is trading at $0.40 then I will end up with $840. That’s a 16% loss. The money was insured but not the currency fluctuation.
Who should invest?
The objective of currency diversification is to hedge against the US dollar’s devaluation. If you are concerned that the dollar will be weakened against other currencies, a foreign currency CD can be a good hedge but only if it includes a basket of currencies not just one. Keep in mind that when you purchase foreign stocks or bonds you are diversifying into the underlying currency of that stock or bond. What is different about a CD is that your exposure is to currency risk only and not to the added risks affecting stocks and bonds such as interest rate risk or industry risk and so on.
Join A Credit Union
Credit unions have low service fees and lower required minimum balances. Check the Credit Union National Association site to see which credit unions are in your area. Credit Unions have smaller ATM networks but if you join one credit union you will be able to use any other credit union’s ATM free of charge. Credit unions are more likely to be trust worthy than banks in general. One big difference is that credit unions are owned by their members not by shareholders.
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