Considerations When Investing in Asian Currency Unit Deposit
From Financial Literacy Wiki
Considerations When Investing in Asian Currency Unit Deposit
So you have decided to invest part of your wealth in ACU deposits, so what are the things you need to consider when you invest in ACU deposits? They are:
- Currency of Deposit
- Amount of Deposit
- Maturity of Deposit
- Bank
Contents |
Currency of Deposit
The first decision you have to make is which currency you are going to invest in. Which currency to choose would greatly depend on the interest rate quoted for the currency's deposit and future direction of that particular currency vis-a-vis the Singapore dollars, whether at maturity, the currency will appreciate or depreciate against Singapore dollars. If it appreciate upon maturity, then you would earn a return higher than interest rate and vice versa.
Amount of Deposit
Next you will need to determine the amount you wish to deposit. All banks impose a minimum requirement for ACU deposits, which can go as low as S$10,000. This minimum amount can vary across the currencies chosen and the banks. Investors need to note that banks tend to quote more favourable interest rates and exchange rates for larger deposits.
Maturity of Deposits
After determining the currency and amount, you will have to decide on the maturity period of your deposits. The maturity periods can range one week to 12 months. Investors should note, since ACU deposits is similar to fixed deposit, premature withdrawals will result in penalty charges.
Bank
The last step is to determine which bank you want to deposit with, preferably one that is financially strong. The interest rate and exchange rate quoted by banks can vary widely and hence, you need to do your own study and decide which is the best.
Interest is computed either on a 365 or 360 days basis, depending on the currencies. When you call a bank for ACU rates, it will quote you both the ACU deposit rates and exchange rates.
For example, XYZ bank's quote for a six-months US Dollar deposit is 5.0625% per annum and the exchange rate is S$/US$ is 1.7805 and 1.7905. The reason why the exchange rate is quoted in pairs is that the first rate is the bid quote and the second is the ask quote.
The bid quote is the price that the bank is willing to buy the foreign currency, in this case US dollars from you. (It will pay you 1.7805 Sing dollars for each US dollar.) The ask quote is the price that the bank is willing to sell the foreign currency to you. So in this case it will sell you one US dollar, for every S$1.7905 that you pay. So you can see that the banks earns from the bid-ask spread.
