How to maximise offshore savings

In the current global financial landscape, marked by economic uncertainty and market fluctuations,  South Africans are increasingly seeking avenues to safeguard their wealth and explore opportunities beyond the country’s borders.

Unique challenges, including strict exchange control regulations and the ongoing unpredictability of the rand, complicate the financial landscape. Political and economic uncertainties further amplify these challenges, as shifts in government policies or economic conditions can directly impact the rand,  and subsequently affect returns on offshore investments.

Here are key strategies for maximising offshore savings and minimising forex charges in this intricate economic scenario.

Foreign currency accounts – a gateway to diversification and cost-efficient transactions  

A crucial initial step is opening a rand CCM account and foreign currency account (if required), typically offered by major banks and forex intermediaries such as Kuda FX. These accounts empower South Africans to hold and transact in various foreign currencies, such as US dollars, euros, or British Pounds, providing a means to diversify savings.

Diversification serves as a risk management strategy. If you have international financial commitments or expect to make purchases in foreign currencies, Kuda FX can assist with hedging strategies against currency risk. Holding multiple currencies, shields your savings from adverse exchange rate fluctuations and economic conditions.

Foreign currency accounts also enable South African clients to earn interest on their rands by capitalising on higher interest rates, thereby maximising potential savings.

Minimise forex charges through an intermediary

In today’s era, forex intermediaries have proven invaluable for minimising foreign exchange charges, offering cost-effective ways to manage and transfer funds internationally.

Lower transaction costs: streamlines forex transaction costs, by ensuring a more direct and efficient process.

Real-time exchange rates: access to real-time rates means clients can make informed decisions at the most advantageous times. This again helps individuals and businesses optimise their forex transactions and cut costs.

Transparent pricing: transparency and consistency in margins and spreads are important when it comes to foreign exchange transactions. Typically, intermediaries bring greater fee transparency compared with traditional banking institutions.

A common oversight, however, is that individuals are often unaware of the two revenue streams for a bank or foreign exchange intermediary in a trade.

Beyond the obvious stream of commissions and fees per transaction, which is typically clearly stated on the trade advice, the second fee lies within the exchange rate —  the spread or margin that is added to the interbank exchange rate.

Clients need to be aware of the percentage margin or cents that are added to the exchange rate, which could vary and is typically very opaque in the industry. A healthy spread or margin ensures the client receives competitive pricing on the exchange of their currency.

Whilst offshore savings offer numerous benefits, its important to understand all associated risks and strive for a balanced approach.

On the positive side, offshore savings can provide opportunities for higher returns, asset diversification, and greater financial security. However, they also come with currency exchange rate risks, geopolitical factors, and regulatory challenges. By adopting these strategies, South Africans can safeguard their wealth and capitalise on international investment opportunities.

Beulah Brown is forex relationship manager at Kuda FX.