3 points to keep in mind when starting foreign currency deposits now Profit simulations by exchange rate fluctuation risk have also been released

The exchange rate, which was around 114 yen per dollar until around 2022/2, is now in the 140 yen range per dollar, and sometimes the yen depreciates rapidly to the 150 yen range.
Also, interest rates on domestic time deposits are close to 0%, but overseas interest rates are at a higher level compared to domestic time deposits.
Prices are also rising, and savings alone are enough...
Will foreign currency deposits be a savior of rising prices?

Foreign currency deposits are made by exchanging yen for foreign currency.
Also, when withdrawing money as yen, it is necessary to exchange foreign currency for yen.
As a general rule, exchange fees are charged in each case.
Exchange fees vary depending on the financial institution and type of currency they handle.
For example, if the exchange rate is 145 yen per dollar, the ratio of the exchange fee to the exchange rate when the exchange fee (one-way) is 10 sen, 50 sen, or 1 yen is as follows.
Exchange fee (one-way): 10 sen 0.069%
Exchange fee (one-way): 50 sen 0.345%
Exchange fee (one-way): 1 yen 0.69%
*Calculated using exchange fees/exchange rates
You may think it is small, but in principle, it is generated from yen to foreign currency and foreign currency to yen, respectively, so it is necessary to check not only interest rates but also exchange fees when selecting financial institutions and currencies that handle them.

There have been no bankruptcies of financial institutions in recent years, but in the unlikely event that the financial institution you are depositing goes bankrupt,
If it is a yen savings account or time deposit, up to 10 million yen is covered by the deposit insurance system (payoff)
It will be.
On the other hand, foreign currency deposits are not covered by this deposit insurance system (payoff), so they may be subject to partial cuts regardless of the deposit amount.
Just in case, it's a good idea to check the financial institution's management status.

3. Foreign currency deposits require more attention to exchange rate fluctuations than high interest rates
Foreign currency deposits are literally “deposits,” but unlike yen time deposits, there is a risk of price fluctuations.
Even if you hear FX (exchange margin trading), you may think that the risk is high, but if you hear foreign currency deposits, you may think that there isn't much risk, but since both are exchange transactions, exchange risk occurs.
Don't judge by images alone.
Also, in exchange transactions, including foreign currency deposits, exchange price movements influence profits rather than high interest rates.
Let's look at it with an example.
prerequisites
US dollar term deposit
Deposit amount: 1 million yen
Interest rate: 3%
Exchange rate at time of deposit: 145 yen per dollar
Exchange fee: 25 sen (one-way)
→・Deposit foreign currency amount: 6,884.68 dollars ・Total foreign exchange amount of principal and interest received (after tax) 7,049.27 dollars
Exchange rate after 1 year: when it is 145 yen (no change)
Total amount of principal and interest received in yen (after tax): 1.02 million381 yen (including exchange fees)
Real yield after tax: 2.038%
Exchange rate after 1 year: when it's 150 yen (yen weakens slightly)
Total amount of principal and interest received in yen (after tax): 1.05 million5,628 yen (including exchange fees)
Real yield after tax: 5.562%
Exchange rate after 1 year: when it is 160 yen (yen depreciation)
Total amount of principal and interest received in yen (after tax): 1.12 million6,121 yen (including exchange fees)
Real yield after tax: 12.612%
Exchange rate after 1 year: when it's 140 yen (yen appreciates slightly)
Total amount of principal and interest received in yen (after tax): 0.98 million5,135 yen (including exchange fees)
Real yield after tax: -1.487%
Exchange rate after 1 year: when it is 130 yen (yen appreciates)
Total amount of principal and interest received in yen (after tax): 0.91 million4,642 yen (including exchange fees)
Real yield after tax: -8.536%
*Break-even rate: 142.00 yen (after considering exchange fees, TTB)
As a prerequisite, the interest rate is 3%, which is a high interest rate that is unthinkable for domestic deposits, but due to exchange fees and exchange fluctuations, earnings fluctuate greatly depending on the exchange rate rather than interest (interest) income on foreign currency deposits.

In the case of foreign currency time deposits, there may also be restrictions on mid-term cancellations.
Handling differs depending on the financial institution, so confirmation is always necessary when making a deposit.
Interest rates are high, but if mid-term cancellations are restricted, it is probably one way to have many options for when you can cancel prematurely with a foreign currency savings account even though interest rates are low and interest rates are low.
At some internet banks, there are also time deposits that mature in 1 or 2 weeks.
Also, depending on the country where the deposit is made, there are currencies with interest rates that are unthinkable for domestic deposits, but exchange rates may fluctuate drastically due to political instability or economic conditions.
Furthermore,
“Predicting future exchange rates, including the US dollar, is more difficult than stock prices, even for experts.”
It is said.
Depositing a large amount of money into a foreign currency deposit at once is quite risky.
If the yen appreciates rapidly thereafter, interest income alone will not be able to cover it, and you will have a large amount of exchange loss.
Furthermore, the purchase unit price can be leveled according to the “dollar cost averaging method,” where purchases are made at a fixed amount every month and accumulated, so please consider it.
If your eyes are taken away only by the depreciation of the yen and high interest rates, you will be burdened with unexpected risks later.
For the time being, try to do it with surplus funds you don't plan to use.

Artist: Okada Yoshihisa (CFP, FP Technician Level 1)

Last updated: November 1, 2022