In Malaysia, Foreign Exchange Administration (FEA) rules are administered by Bank Negara Malaysia (BNM) under the Financial Services Act 2013 and the Islamic Financial Services Act 2013 to safeguard the value of the Currency of Malaysia.

Under these rules (that were last updated on 03rd December 2014), Malaysia continues to maintain a liberal foreign exchange climate to support the overall macroeconomic objective of maintaining monetary and financial stability. Under the Rules Applicable to Residents, residents are free to undertake any amount of investment in Foreign Currency assets offered in Malaysia by a resident.

Here we will take a look at a foreign currency product offered by many banks – the Foreign Currency Fixed deposit:

What are the benefits of foreign currency fixed deposits (FCFD)?

• They sometimes provide higher returns than conventional deposits and in foreign currency but are subject to exchange and other market risks.

• Since they enable investments in different currencies they give investors the option of diversifying their portfolio.

• They are also useful for those who wish to invest overseas, have children who are studying abroad or have business interests outside Malaysia.

• FCFDs can also be used as a hedging tool against exchange rate fluctuations. Such investors can keep their monies in the account till the exchange rate is beneficial for them. The money in the account also continues to earn interest.

Some examples of foreign currency fixed deposits

The Foreign Currency Time Deposit from Citibank, the Foreign Currency Deposit from Standard Chartered Bank, the Foreign Currency Time Deposit from OCBC Bank, Public Bank’s Foreign Currency Fixed Deposit Account, Islamic and conventional foreign currency deposits from Maybank, HSBC’s Foreign Currency Account are all examples of FCFD products.

Features of foreign currency fixed deposits – how do they work?

Tenure

They are usually available in tenures ranging from 1 month to 12 months. Even lesser tenures are also available. For example, Public Bank’s Foreign Currency Fixed Deposit Account has a flexible deposit period ranging from overnight to 12 months.

Interest Rate

Interest rates vary depending upon the bank, the currency of deposit and even the tenure of deposit. For instance, take the Foreign Currency Fixed Deposit from Alliance Bank Malaysia Berhad; deposits in AUD provide interest rates ranging from 1.60% p.a. to 2.50% p.a. for tenures ranging from 1 week to 12 months.

Minimum Deposit Amount

The minimum opening balance for a Foreign Currency Time Deposit from Citibank is USD 3,000 or its equivalent. With HSBC the minimum deposit amount varies with the type of currency. For USD it is 3,000, for GBP it is 2,000, for AUD it is 3,000, for JPY it is 300,000 etc.

Currencies Available

This depends upon the product and the issuing bank. Examples include Standard Chartered Bank’s Foreign Currency Deposits that are available in 8 currencies, Citibank’s Foreign Currency Time Deposits that are available in 10 currencies, HSBC’s Foreign Currency Account that is available in 12 different currencies and Alliance Bank’s Foreign Currency Fixed Deposits that is available in 8 currencies.

PIDM Protection

Usually FCFDs are eligible for PIDM protection. Under this system the maximum limit of coverage per depositor per member bank is RM 250,000.