What are multi-currency accounts?
Multi-currency accounts are receiving and sending bank accounts that are denominated in a foreign currency to your local currency. This allows an individual or a business to send, receive and hold multiple foreign currencies all accessible within the same dashboard. Each account has unique banking details associated with them. Deposits into the account must be in the currency it is denominated in, otherwise, a currency conversion occurs.
Local and non-local multi-currency accounts
Foreign currency denominated accounts can be located within the country of the foreign currency or your home country. For example, a USD account can be located within the USA or outside the USA.
Non-local foreign currency multi-currency accounts
Most major banks give the ability to open foreign currency accounts. However, the foreign currency account is located within your home country. So although it is a foreign currency, it is ‘located’ at home. This can be considered a non-local foreign currency account.
Digital banks such as Revolut, Monzo, Monese and Starling all provide you simple and easy steps to creating accounts in multiple currencies. However, these accounts are located within your home country.
There are a couple of advantages to leveraging an existing relationship to create the foreign denominated currency accounts or multi-currency accounts.
- These types of multi-currency accounts can be convenient as you generally open them with your local banking partner. The compliance, admin and documentation are generally low effort as the bank already knows you.
- For business, this might mean that it is easier for bookkeeping and reconciliation as it is a familiar feed into your accounting system.
- Foreign currency exchange optimised debit cards that back on to the multi-currency account means that you can spend in other currencies cheaply.
- Digital banks such as Revolut provide very inexpensive means of converting your currency between your multi-currency accounts. Meaning that you can spend in foreign currencies with smaller fees associated with big bank issued travel cards.
While it is convenient for global travellers to use e.g. Revolut multi-currency accounts, some disadvantages should be considered for your use case.
- As the multi-currency accounts are non-local, receiving money into the multi-currency accounts is considered a foreign international transaction for the sender. Which costs them money. Using Revolut as the example, for a UK customer to receive USD from a customer or friend in their USD account, the sender will need to pay international transfer fees of up to $25 even though no currency conversion is done.
- If you are using a traditional big bank, foreign currency exchange costs for converting currency balances between your accounts can attract large fees. Fees for sending and a poor exchange rate (hidden fees).
- Consider if you need to send and receive USD as part of your multi-currency account to other USD accounts also not located within the USA. All USD transactions must be cleared through the USA financial clearing system. And therefore, the USD to USD transfers must traverse through the USA. This can result in even higher fees to send between USD accounts located outside the USA.
- Subscription fees. Digital banks such as Revolut charge monthly subscription fees to increase their low foreign currency conversion limits. Limits on such digital banks are perfect for the budget traveller. Above the limits can cost up to 2% on ATM withdrawals and currency conversion fees.
Local foreign currency multi-currency accounts
These types of multi-currency accounts provide local banking details for each of the foreign currency. This is done through local banking partnerships allowing you to open a local bank account for sending and receiving, without living in that country. There is more competition in this specialized space over the last few years. And because they have been created by specialist money transfer companies, you can be assured that currency conversion fees are very low and extremely low compared to the big banking multi-currency account solution.
Money transfer companies that offer local multi-currency accounts
|Local currencies available||Type||Debit card availability|
|Airwallex||EUR, GBP, AUD and USD||Business only||Yes**|
|WorldFirst*||GBP, EUR, USD, CAD, CNH, HKD, JPY, NZD, SGD, and AUD||Business only||No|
|OFX||EUR, GBP, AUD, HKD, SGD, CAD, and USD||Business only||No|
|TransferWise||USD, GBP, EUR, AUD, and NZD||Individual and business||Yes ***|
* WorldFirst does not support USA customers
** Virtual cards are available. Unique virtual cards for all employees can be issued under the same business account for online spending.
*** Only physical cards issuance is supported. No virtual card support is available. One card per account. Spending limits apply.
Benefits of local multi-currency accounts through specialist international money transfer companies
- Receive funds like a local. This is great for international businesses who have customers and suppliers in the same international marketplace. This significantly reduces the currency conversion costs on your international business as it removes the need to repatriate revenue and send suppliers money internationally.
- Spend like a local. For the international money transfer companies that offer multi-currency accounts with debit cards attached, receive or convert funds within the multi-currency accounts (conversion attracting very low fees), and then spend in the local currency. Great examples are advertising spend or foreign SaaS (Software as a Service) tools etc. Attach the debit card to e.g. Facebook/Google advertising spend or pay for your SaaS tools. If you are an international online e-commerce seller, pay for the hosting, platform, shopping cart, CRM, customer communication tools at a very low cost of currency conversion, or with no conversion if you also receive funds in the same currency.
- Integration with online accounting for simple bookkeeping and transaction reconciliation. All of the solutions listed in the table above are compatible with Xero accounting software.
- Single pane of glass for all your international revenue and payments.
Disadvantages of local multi-currency accounts through specialist international money transfer companies
- Initial account creation and compliance process. While not time-consuming, it may be considered a blocker to solution adoption for time-starved small and medium-sized businesses.
- Migration of receipts and payments for local suppliers and customers. This can, however, be conducted slowly over time, to reduce the administration.
- Migration of bookkeeping processes. For the businesses that are organized, auto-reconciliation rules would need to be recreated and the old accounts retired.
It is extremely advantageous to individuals and businesses who roam, work and operate in the global economy to leverage multi-currency accounts. Both local and non-local multi-currency accounts have their advantages and disadvantages. Here at iCompareFX we use Airwallex and TransferWise multi-currency accounts. Both connected to the Xero accounting platform. This saves us money sending and receiving funds internationally. Some people or businesses may consider a blend of the two that fits into their processes to reduce administrative burden and costs of travelling and working internationally.