Advantages Of Exchanging Foreign Currencies In Advance (Vs Right When You Need It)

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In Singapore today, many of us are likely using foreign currencies more regularly than we ever had. Whether it’s travelling overseas for a holiday, shopping on international e-commerce sites or investing in foreign-denominated investments such as unit trusts, we need to have foreign currencies to pay for the foreign products and services that we buy.

For example, in my recent holiday to Japan earlier this year, the foreign currency conversion for SGD to JPY was at 100, which means a JPY1,000 ramen would cost SGD10 then. Today, with the SGD/JPY trading at about 107 (as of 17 August 2023), that same bowl of ramen would cost only SGD9.34.

We know that foreign currency exchange rates fluctuate all the time.

For instance, on 1 January 2023, the USD/SGD was trading at 1.34 (USD1 = SGD1.34). By 1 February 2023, the SGD had appreciated against the USD and was trading at 1.30 – an opportune time for Singaporeans to convert and spend in USD.

However, the SGD has since depreciated against the USD, trading at 1.36 as of 17 August 2023.

Source: Google Finance

In this article, we share four reasons why we think it’s advantageous to convert the foreign currencies we need in advance.

Advantage #1: By Converting In Advance, We Can Lock In Favourable Rates and Get FX-Ready

One of the biggest advantages of converting SGD into foreign currencies in advance is that it allows us to lock in the rates whenever we consider them favourable.

Before travelling overseas, it’s common to see family and friends hunting around The Arcade and People’s Park Complex in search of the best exchange rate for the foreign currencies they need. However, getting the best foreign currency exchange rates has more to do with when we change it, rather than where we change it.

For example, with the USD/SGD trading at 1.36 on 17 August 2023, it will likely be difficult to find any money changers in Singapore that can give us a rate that is lower than 1.35 on the day. However, if we had opted to change for USD in January or February instead, we would be able to more easily find money changers that could give us a rate of 1.35 or lower.

Thus, if we know that we need to use a certain foreign currency in the future, it would make sense to convert in advance so that we can lock in the rates.

However, do note that anticipating when a foreign currency is trading at its most favorable rate against the SGD can be a challenge. For instance, in 2022, when the SGD traded at a historical low of SGD1 to JPY102.7, we may think the rates are as good as they would ever be. Since then, however, the SGD has continued to strengthen against the JPY and is now trading at about 107 as of 17 August 2023.

Those of us with an existing UOB One Account or KrisFlyer UOB Account can use Mighty FX, a multi-currency account on the UOB TMRW app to make conversions in 11 major currencies (Australian Dollar, Canadian Dollar, Chinese Renminbi Offshore, Euro, Great Britain Pound, Hong Kong Dollar, Japanese Yen, New Zealand Dollar, Singapore Dollar, Swiss Franc and United States Dollar). The foreign currencies that we convert will automatically be kept in our UOB account.

When using Mighty FX, we can set rate alerts so that we get notified whenever our ideal exchange rates are met. For example, while the current exchange rate for the SGD/JPY is 1.07, with Mighty FX, I can set an alert to receive a notification when my preferred exchange rate of 1.09 is met to prepare for my next trip to Japan.

There is also an option to Convert and Alert which would automatically make the conversion on my behalf once the rate of 1.09 is met.

Advantage #2: Availablity Of Currency For Opportune Investment, Unaffected By Conversion Rate Concerns

From an investment perspective, we may sometimes spot a good overseas investment opportunity only to realise that the foreign currency we need in order to make the investment is trading at an unfavorable exchange rate.

For example, if we want to buy a US stock that has seen its price drop, but the USD/SGD rate isn’t favorable for the SGD at the point, then what appears to be a good investment opportunity may not be that attractive because we need to change our SGD for USD first before making the investment.

To solve this, we can ensure that we have available foreign currencies at our disposal to invest at any time without having to worry about the foreign currency spot rate. We can also make regular conversions to build up our foreign currency savings, which can help mitigate exchange rate fluctuations. The idea is to reduce the impact of exchange rate volatility and to get an average price.

We can also use Mighty FX to ensure that we will be getting competitive rates for 11 major currencies.

For instance, on 17 August 2023, we can see that the “Google Rate” for the SGD/AUD is at 1.1469. This means for every SGD100, we get AUD114.69.

At the exact same time, Mighty FX offers us a similar rate of 1.1468. This means for every SGD100, we get AUD114.68.

Advantage #3: Convenience and budget familiarity

Not only does Mighty FX assure us of competitive exchange rates through the UOB TMRW app, it also offers greater convenience since we can convert currencies 24/7 anywhere we are. It’s also safer as we don’t need to withdraw a stash of cash and convert it physically at traditional money changers. Through the app, we can shop, invest and manage all our finances on our phones.

If we’re travelling, we can use Mighty FX to convert currencies on-the-go. This is particularly useful if we’re travelling to multiple countries within a trip, as it saves us the trouble of having to estimate how much foreign currencies we’d need in each country. It also saves us time from having to find a money changer overseas, and potentially having to accept less competitive rates.

In addition, we can use the accompanying Mighty FX or KrisFlyer UOB debit card for overseas spending. If we tagged Mighty FX to the UOB One Account, we’d be issued a Mighty FX debit card. If we tag Mighty FX to the KrisFlyer UOB Account, the KrisFlyer UOB debit card will be issued to us.

With either card, we can enjoy no monthly spend limits as long as as we have sufficient funds in our debit card account. We’ll also save on admin fees when we use the card for overseas or online spends.

Advantage #4 Earn Interest On Selected Left Over Foreign Currencies

One common problem when it comes to exchanging SGD into foreign currencies is that we sometimes end up converting more than we need. For instance, when Singaporeans intend to travel to the US, we would convert our SGD to USD before our trip. However, it’s possible that we may not fully spend all the USD.

The good news is that with Mighty FX, we can easily keep the leftover USD that we have in our designated UOB account. This reduces the hassle of having to keep the unused notes and coins that we have until the next time we travel to the US (which may only happen years later). At the same time, we can also earn interest on selected foreign currency savings including the USD, AUD, NZD and CNH accounts. Of course, we can also earn interest on our SGD savings.

If we’d like, we can also choose to convert the USD back into SGD or other foreign currencies supported by Mighty FX. In fortunate circumstances, foreign currencies might have risen in value against the SGD, enabling us to profit from currency conversion. Whether we choose to convert our SGD for foreign currencies in advance, or prefer to only do it at the point we need it, Mighty FX provides us the flexibility to convert currencies at attractive and transparent rates 24/7 on the UOB TMRW app.

What’s more, enjoy these mighty perks from now until end-September 2023!

• Get a S$20 cash credit^ when you’re among the first 580 customers to sign up for Mighty FX online in September 2023
• For new-to-UOB Deposits customers, receive up to S$58 cash^ and an Apple AirTag^ when you apply for a UOB One Account/KrisFlyer UOB Account online with Mighty FX on a Friday from now till 29 Sep 2023. So open your UOB account and start using Mighty FX today!

Read Also: The Battle For High Interest: Why I Chose To Switch To The UOB One Account

 

Important Notice and Disclaimers

Chinese Renminbi Offshore (CNH) is not available for point-of-sale/online transactions and overseas ATM cash withdrawals.

^T&Cs apply. Visit the official Mighty FX webpage for more details.

The information in this publication is strictly for general information purposes only and without obligation. It does not constitute accounting, legal, regulatory, tax, financial or other advice and shall not be regarded as an offer, recommendation, solicitation or advice to buy or sell any investment product, securities or instruments, or to make any investment, or to undertake any particular investment strategy. Any description of investment products is qualified in its entirety by the terms and conditions of the investment product and if applicable, the prospectus or constituting document of the investment product. The information in this publication does not have regard to any specific objectives, financial situation, and/or the particular needs of any specific person or circumstance. Investors investing in investment and/or treasury products denominated in non-local currency should be aware of the risks of exchange rate fluctuations that may cause a loss of principal when foreign currency is converted back to the investors’ home currency. Foreign currency trading is subject to rate fluctuations, which may provide both opportunities and risks. If in doubt, you should consult your own professional advisers about issues discussed herein. In the event that you choose not to seek advice from a professional adviser, you should consider carefully whether the relevant product is suitable for you.

The information herein, including any data, projections and underlying assumptions, are based on certain assumptions, management forecasts and analysis of known information and reflects prevailing conditions as of the date of the article, all of which are subject to change at any time without notice. Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, United Overseas Bank Limited (“UOB”), its employees, officers and directors make no representation or warranty of any kind, whether express, implied or statutory, and shall not be responsible or liable for its completeness or accuracy. As such, UOB, its employees, officers and directors accept no liability for any error, inaccuracy, omission or any consequence or any loss/damage howsoever suffered by any person, arising from any reliance by any person on the views expressed or information in this publication.

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