Is Foreign Currency Fixed Deposit (FCFD) Investment Better Than Fixed Deposit (FD)?

Have you invested in the Foreign Currency Fixed Deposit recently due to the promise of 5%, 6%, 8% or even 12% return per annum?

There are many uncle and aunty are talking about this foreign deposit thing, and I decided to figure it out.

You many notice that for NZ fixed deposit, it was the highest offered by the banks, the rate is up to 12% per annumn. (I said “It was” because the rate might if fluctuating.) As per writing these are the rate I’ve found on the internet.

By Public Bank:

By HLB:

By CIMB:

** Please check with the respective banks for the latest rate.

You might start thinking, wow.. it’s nice. Even it is lower now, yet It is better than conventional FD?

So, is foreign FD better than the conventional one? Let me put this into a story.

After seeing tonnes and tonnes of ads, Ah Beng (a Chinese name) went to a bank and tried to figure out how foreign FD works. In the bank the smart-looking professional banker approach Ah Beng). With the friendly smile, he started:

Banker: “Hi Sir, do you know that you can make 7% or 8%, even a 12% return per annum by investing in Foreign Currency FD?”

Ah Beng: “Oh really? How does it work? Come come.. brief me” (The greedy sign start to show…)

Banker: “Sir, it is simple, it is like conventional FD. The difference is you place you money in the foreign currency account as fixed deposit and the return is based on FD rate offered by the currency you invested in.”

Ah Beng: “Is it? I don’t believe. What’s the catch?” (Trying to act smart)

Banker: “Yea yea.. of course there is terms and conditions. all you have to do is put  at least X,XXX amount of money in the account”

Ah Beng: “Is that so simple? Does it guarantee?”

Banker: “Yes, sir, it is very simple. Sir, it is not the ‘quick rich’ scheme, it is certainly guaranteed by the bank, but the rate is fluctuate you know… It depends on the rate offered by foreign FD. Anyway, you’ll always find it’s better than FD, no need to worry.”

Ah Beng: “oooohh, then it is very risky. The rate might fluctuate and I’ll lose if foreign is weaken againts local’s” (Trying to act smart again…)

Banker: “Yea sir you’re right.. it is always ‘risk againts return’. The higher risk the higher return” (Huh, the banker trying to make Ah Beng feels smart and he continues)

Banker: “That’s why it is the best time to invest in AUD foreign FD now.” (Banker trying to convince Ah Beng)

Ah Beng: “How?” (Seems not interested already)

Banker: “Because it was 3.2 ~ 3.4 RM per AUD dollar. Due to financial crisis, the rate drop until 2.3~ 2.4 now and the value to AUD will increase… That’s why I said now is the best time.” (Trying to relate to globally financial crisis…)

The conversations continues… Bla bla bla… end up Ah Beng put his money in the foreign currency fixed deposit.

Is FCFD better than conventional FD? It depends, it is always true that “ROI vs Risk”. Will he make money after one year? I don’t know… Yes, I don’t know, he can even make a loss in his investment. How? Let’s find out how a foreign currency FD works. (I’ll write in future)