The key advantage? By having foreign currency account, you will save money as you will not be paying conversion costs.
A foreign currency account can be managed in the same way as a standard current account, and many banks offer this service, although eligibility criteria and charges range from bank to bank, and opening an account will be subject to usual diligence procedures.
Approach the larger branches
Most high-street banks offer foreign currency accounts but I recommend you try the larger branches. But I think you will find that charges per cheque are more expensive than sterling current accounts because there is more work involved.
Certainly, if you are spending as well as earning money in the US, it makes sense to keep the money in dollars as you don’t have the exchange costs to bear, advises Nigel Lander.
For example, Lloyds TSB runs currency accounts including dollar accounts, and if you visit one of their Business Centres, you can find out more about the options available.
Its currency accounts can offer the following benefits:
- Allows you to make transactions in a foreign currency
- Can be used to fund short-term cashflow requirements
- Available for any business dealing in one or more foreign currencies
- You can have a cheque book for foreign currency transactions
- Payment and collection of foreign currency funds is simplified
You can also reduce the risk of adverse movements in exchange rates and interest is paid on some of your credit balances.
With the account from Lloyds TSB, interest is calculated on the credit balance each day and paid half-yearly, with the exception of company accounts.
Basic rate is normally deducted automatically from any credit interest Lloyds pays. Credit interest rates can vary from day-to-day.
Warning: charges and expenses apply
Foreign currency accounts with chequebooks can be a useful way of making regular payments in a foreign currency. But be aware that if you pay using a cheque, the person receiving it will most likely sustain a hefty local bank charge.
The complexities of the US banking system means that getting value for your cheques is not the not same as in the UK, where cheques can be cleared in three days. In the US it can take up to a month to get the value.
Dollar cheque accounts are available in the UK, but not quite as easy to use as sterling, and you need to understand that there will be charges and expenses involved, advises Lander.
Banks blamed for hidden foreign exchange fees
Small businesses are ignorant of how much overseas money transfers cost, research suggests.
A survey of 565 senior decision makers in small businesses with less than 50 staff finds that more than 80 per cent don’t know the true cost of foreign exchange through their banks, which charge between 3 per cent and 6 per cent for money transfers.
Directors of small financial services firms were even less likely to correctly identify the correct costs of money transfers through high street banks than their counterparts in other sectors.
Taavet Hinrikus, co founder of money transfer site TransferWise, which commissioned the research, says, ‘When even financial services firms don’t understand the true costs of international money transfers, what chance has the average entrepreneur got?
‘The fact is, the hidden foreign exchange fees charged by banks are hitting companies’ hard-won margins. Six in every ten small businesses mistakenly believe their bank charges less than 4 per cent for processing international payments. The real cost is higher than they think, and ultimately is eating away at their profits.’
Almost half (43 per cent) of respondents say they would find international trading more attractive if foreign exchange fees were more transparent and easier to understand, the research reveals.
This figure is even higher among manufacturing and technology businesses with 54 per cent and 58 per cent respectively said they would find overseas work more attractive if foreign exchange was transparent.
Only one in four (27 per cent ) senior decision makers say they think UK banks make it ‘clear’ how much bank charges for handling overseas money transfers.
Hinrikus adds, ‘Two years ago, the Office of Fair Trading told banks to make their fees for overseas transactions easier for consumers to understand by clearly showing them all the charges that apply. They need to do the same for small-business owners.
‘Banks are making it almost impossible for small businesses to understand overseas money transfer costs.’