How do I invest in Euros?

March 4, 2008 8:36 PM

Are there any financial institutions available in the US to buy Euros as a hedge against the falling dollar?

As we all know, the value of the Dollar is falling and money in the bank is free-falling due to both the falling dollar and inflation. In a way to hedge against the falling dollar, I thought it might be possible to save in Euros or even the Chinese Yuan instead.

Is there any financial institutions are methods to invest in Euros or have a savings accounts entirely in Euros instead of Dollars in the US?

posted by pikaboy202 to work & money (20 comments total)

Citibank lets you have a euro-denominated account. As a general matter, I think any international bank will let you do this--just ask at a branch.

Keep in mind, however, that special tax rules may apply to transactions in foreign currencies. Consult your tax adviser.
posted by Admiral Haddock at 8:43 PM on March 4, 2008

you can purchase foreign-currency denominated certificates of deposit at everbank. they also have a deposit account that holds the money in foreign currencies.
posted by jimw at 8:49 PM on March 4, 2008

Euro etf, bearish dollar etf (and bullish dollar etf).
posted by milkrate at 8:50 PM on March 4, 2008 [2 favorites]

Don't buy actual Euros, but currency through forex through a registered broker and put a buy/sell instruction on it.
posted by parmanparman at 9:08 PM on March 4, 2008

You can open an international trading account at etrade and transfer money between a number of currencies (no yuan, though). I do a bit of that I have some money in FXE (which milkrate noted) as well.
posted by MillMan at 9:16 PM on March 4, 2008

As we all know, the value of the Dollar is falling

We also all know that past performance is not a reliable indication of future results.

That said, there is no reason not to diversify your currency holdings if you are holding a lot of cash (or bonds, etc.). The best way to do that depends on how much money you have and what your plans are for that money. Can you tell us how much money you are talking about and the purpose of that money?
posted by ssg at 9:22 PM on March 4, 2008 [2 favorites]

Don't buy actual Euros, but currency through forex through a registered broker and put a buy/sell instruction on it.

If you have strong views on the future movement of the dollar and an appetite for risk, most brokers will let you trade on margin. This has the effect of amplifying your gains and losses: more risk and more reward.

We also all know that past performance is not a reliable indication of future results.

Amen. Currency markets are both complex and pretty efficient, so it can be challenging for a casual trader to do better than a coin flip.
posted by blue mustard at 9:56 PM on March 4, 2008

FXC & FXE are good because they also pay interest!

cough, some coinflp . . .
posted by panamax at 10:36 PM on March 4, 2008

Stay away from forex brokers and pure speculation contracts. If there is a reasonable amount of money I would try to put it either in some kind of euro nominated bonds or if you dont need the money for a while buy stock in a company that has its earnings in euros. (Doesn't necessarely have to be a european company) This way you will earn interest on your money while hedging currecy risk.

If the amount isn't to big or you might need the funds soon just get a euro nominated bank account.
posted by ilike at 2:17 AM on March 5, 2008

it can be challenging for a casual trader to do better than a coin flip

Not when there's emotion involved, as there is during any recession. Then it's a pretty foregone conclusion that people will be dumping their local denomination for something more "stable." Which is why I've been bullish on the Euro for the past five years. The bottom is not yet in sight for the USD.
posted by Civil_Disobedient at 5:21 AM on March 5, 2008 [1 favorite]

I'm interested more in Euro-denominated accounts like "admiral Haddock" and "jimw" suggested.

I don't see the place where citibank allows such an account except a link on their frontpage called "expatriate banking" where you have to leave the country.

I will look more into Everbank.

Are there anymore banks that allow Euro-denominated accounts? Links?
posted by pikaboy202 at 7:31 AM on March 5, 2008

Seconding Everbank, with the caveat that their Website does not work right with FireFox. You can view your accounts with it, but it logs you out if you try to do anything more complex.
posted by Kirth Gerson at 7:31 AM on March 5, 2008

Also note that you cannot withdraw the euros from your Everbank € account, from an ATM in Europe. You'll pay a commission to them for conversion of deposits to €, and then another commision for withdrawals, from € back to US$.
posted by Rash at 12:43 PM on March 5, 2008

You say you're more interested in having a Euro-denominated account but if you're just wanting exposure to Euros rather than actually wanting to spend them, an ETF is probably the way to go.

Possible problems with Everbank:
- $2500 initial deposit (may not be a problem for you)
- Currency conversion rate of 1% - so to get it back to USDs, you're paying 2%. That's more than the interest that Everbank pays and could be a significant portion of your return if you sell quickly
- In order to get an interest rate of over 0.63% (for $60k), you need to get a CD anyway, it's not an Access Deposit account

Advantages of an ETF:
- Low, fixed-price dealing charge from from your discount brokerage that's not dependent on amount
- Easy to put in a stop order to limit your downside risk
- You'll end up with more money, as they'll pay you a much higher rate of interest. In the case of FXE linked by milkrate above, they're paying a yield of 3.01% which is a huge improvement over -1.37%.
- You can invest as much or as little as you like
posted by quiet at 5:39 AM on March 6, 2008

quiet, I don't know about your Everbank info. this is from their Account Fee Schedule (PDF):

WorldCurrency Conversion Rate:
EverBank World Markets does not charge any fees to convert your WorldCurrency deposit from one currency to another; the full U.S. dollar amount deposited, funds your chosen investment.

So, you're not paying 2%, unless (possibly) you're using an ATM in Europe, as Rash pointed out.

Also, the 1.37% number you cite is only for $AUS; other currencies have different rates, and if you buy a foreign-currency CD, the interest is much higher (adding to any gain or offsetting any loss of what the foreign currency does against the $US). A New Zealand-dollar CD currently pays 6.13% interest.
posted by Kirth Gerson at 10:51 AM on March 6, 2008

My numbers are for the WorldCurrency Access Deposit Account:
0.63% on Euros.
1% currency conversion rate.

The -1.37% is the 0.63% interest less the 2% conversion. There's no AUD or NZD in there.

A CD is a very different animal to an instant access account. There's a fixed term so you're losing liquidity. If the world or your personal circumstances change and you decide you want to unwind your position, too bad. There's not much as frustrating as watching something slide and being unable to sell.

So the rates for the CDs are on the same page (scroll down to WorldCurrency CD Yields). Now you can get a 2% yield on a 3-month CD, but it's the same currency conversion rules:

The currency conversion rate will be within 1% of the wholesale spot price EverBank pays for the currency. Exceptions may occur when a specific conversion rate is agreed upon between you and EverBank. Please note, if you request funds in your account to be denominated in a currency other than the currency sent to EverBank to fund your account, EverBank will convert the funds using the then prevailing currency conversion rate offered by EverBank.

Yes, they don't charge fees, but from my reading, they're taking 2% anyway. So with a 3-month CD, it means that your interest is 0.5% (2%/4) and your fees are 2% (1% + 1%) so a net loss of 1.5%.

I just don't understand why anyone wouldn't use an ETF. I'm not a financial advisor (although I've worked in Finance for some years), but I can't see a single advantage that the CD offers over the ETF.
posted by quiet at 11:39 AM on March 6, 2008

I see what you're saying about the conversion rate, but it didn't happen to the money I put in; every penny went into my account. I will try to get them to clarify this point.
posted by Kirth Gerson at 1:44 PM on March 6, 2008

Kirth Gerson: The "fee" for conversion wouldn't be shown anywhere in your documentation.

As an example:

Amount to invest: USD15,000
Interbank conversion rate: 1.5USD = 1EUR
Euro interest rate: 3%
Currency conversion rate as percentage of Interbank: 1%
Length of investment: 1 year

To make a fair comparison, I'm going to assume that the USD-EUR exchange rate is stable over the year as changes affect both.

On day 1, Everbank converts your USD15k into EUR9901. This is because instead of giving you a rate of 1.5, they're giving you a rate of 1.515 (1.5 + 1% of 1.5).

After 1 year, you've earned 3% interest so you have EUR10198. Now you want your USDs back so you convert it again, but this time the rate goes the other way so you get 1.485 ( 1.5 - 1% of 1.5) so you're left with USD15144.

So after 1 year, your return is USD144.

Now with the ETF, assume your dealing fee at your online brokerage is a fixed USD15.
You get the equivalent of USD14985 at 1.5, so EUR9990. After a year it's worth EUR10290 and you sell, getting USD15435, less the USD15 trading cost so you end up with USD15420.

So the CD gets you a return of 144 or 0.95% and the ETF gets you a return of 420 or 2.7%.

This might not seem like a big difference, but looking only at the compound interest, 15k invested over 10 years has the following returns:

0.95%: 16,487.49
2.7%: 19,579.23
posted by quiet at 1:22 AM on March 7, 2008

I finally got an answer from Everbank:
"Our fee is in actuality a conversion spread. We as a bank are charged the wholesale spot rate and markup that rate by 0.75%."

This is after several emails back and forth that did not produce an answer. So - their "no fees" is not true, and quiet is right.
posted by Kirth Gerson at 4:08 PM on March 13, 2008

I just thought that I'd add to the discussion, for the benefit of anyone else venturing down this path: HSBC has apparently (?) taken out some Google Ads and made their foreign-denominated accounts services more clear.

They have a website dedicated to the topic at http://www.offshore.hsbc.com/.

It seems more geared to wealthy multinational travelers than individuals trying to prevent their savings from being eaten up by a falling USD; the account minimums are quite large: £5000, $10000 or €10000 to open an account plus you must have an overall "relationship balance" of £25,000 or its equivalent to avoid a £20/mo maintenance fee.

Obviously not a product designed for us plebs. However if you have a fair bit of cash to toss around (or already have a lot of cash with HSBC), it might be worthwhile.

I think for anyone else, the answer is ETFs like FXE.
posted by Kadin2048 at 12:16 AM on September 27, 2008