Should you consider opening a bank account abroad?

You don’t need an overseas bank account to invest abroad, says Warren Ingram, executive director of Galileo Capital. 

“You can convert your rands into dollars and put the money straight into the bank account of your product provider,” he explains. 

“I don’t see the benefit, in all honesty.”

For South African citizens with no connections overseas it is extremely difficult to open a bank account abroad, says Magnus de Wet, director of Vista Wealth Management. 

An easier and more cost-efficient option is to open a foreign currency bank account with a South African bank, he says.

While most offshore investment platforms have minimums with regard to initial and top-up investments, there are no minimums involved with converting your rands to your foreign currency bank account, says De Wet.

“We advise clients wanting to invest directly offshore to open a foreign currency bank account as the first step towards an offshore direct investment,” he says. 

“These days you can open a foreign-denominated currency bank account electronically within three days.”

Some banking providers would provide you with a rand- and a foreign-denominated currency bank account, adds De Wet: “The investor would then first pay their rands into their rand bank account with this institution.”

Once the rands are deposited, the investor just contacts their conversion agent to convert their rand payment and put it into their foreign-denominated currency bank account. 

This holds several benefits for investors:

Time: 

“As this is the first step in the offshore investment process, it gives investors more time to do homework on where and how they want to invest while already locking in the exchange rate,” De Wet says. 

However, he stresses that due to the interest rates in these accounts being zero, it is not recommended to leave money in a foreign-denominated currency bank account for an extended period.

Transparency: 

There is a cost involved with converting your rands to a foreign-denominated currency, and the process is transparent, he adds. 

The conversion fee is “mostly a percentage-based fee and is collected by adding a few cents to the price you’re paying for the foreign currency”.

Staggering: 

Having a foreign currency bank account allows you to stagger the conversion of your rands into a foreign-denominated currency, De Wet explains. 

“With the volatility of the rand, we recommend that investors stagger their buying of foreign currency and not convert all at once, as no one knows whether the rand is at that point at its top/bottom,” he says. 

Flexibility: 

“Once your funds are in your own foreign currency bank account, you can invest in multiple financial institutions and are therefore not tied to one specific institution,” De Wet adds. 

“You can also use your foreign currency bank account for debtors, creditors or other expenses you might have outside the country.” 

This article is part of the cover story that originally appeared in the 12 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.