The number of small businesses going international in some way has been increasing for years. Already, well over 50% of SMEs and entrepreneurs are doing business with suppliers and customers from abroad. Therefore, it’s no surprise that the need for foreign currency accounts has been growing as well. USD accounts are in particularly high demand because the American Dollar is the world’s reserve currency.
It used to be that banks were your only solution for this. However, today there are alternative foreign currency service providers that offer far better alternatives to expensive bank accounts. Using these options can enable even more businesses to go global as well as help them reduce costs.
Why a Foreign Currency Account in Your Bank Might Not Be the Best
There is no arguing that opening a foreign currency account in your bank might be very convenient. Today, you should be able to manage it with no problem using an online banking app.
You can also be sure that this is going to be a very secure account. After all, banks follow stringent regulations, are audited by multiple authorities, and use top-grade security solutions.
However, all these benefits come at exorbitant prices. Bank fees are high for every service, and everything to do with foreign currency exchange (FX or forex) is even more expensive. It’s not only account fees you need to worry about as well. This type of accounts usually comes with restrictive requirements, like a high minimum balance. Liston Newton business advisory is here to support your business continuity planning.
Most importantly, every transaction coming through this account will require a mandatory currency conversion. In some cases, you can’t even get USD from abroad straight to your bank account. The money will instead be converted into your local currency, like the GBP and then, converted again to the USD. You won’t even see this transaction happening as the bank will only show you the final cost of the transfer.
But every time you convert currency using a bank, you are overpaying for the transaction itself. That’s because banks use high FX rate margins. Therefore, the currency conversion rates they offer are always unfavorable.
This might change for very large transfers from corporate and VIP clients. However, the majority of SMEs and private investors do not have those privileges. Thus, having a foreign currency account is sure to be expensive for them.
Virtual Multi-Currency Accounts: A Cheaper & More Efficient Solution
Using banks is expensive, so the appearance of alternative solutions is only natural. In this industry, they came in the form of FX companies that offer a variety of currency services. They mostly specialize in international money transfers and foreign currency exchange. These companies are almost fully online-based. Thus, they have much lower overhead costs and operate outside of strict banking industry regulations.
For a global business or even an international traveler, one of the main advantages offered by FX companies is multi-currency accounts. Simply put, you can use them to open a virtual USD account, or even an account that will hold multiple currencies at the same time. It will be fully digital, but the majority of the world’s money currently exists in digital form. And many top companies allow making cash deposits.
Therefore, you are getting the same kind of service, which is an account you can use in foreign currency. However, you get it in a much cheaper and efficient package compared to a bank.
Main Benefits of Using Virtual Multi-Currency Accounts
- The unparalleled convenience of managing multiple currencies in one account.
No doubt, the biggest advantage of multi-currency accounts is convenience, especially for online merchants. An account like this enables you to hold a balance in several currencies. Therefore, you are able to accept payments from multiple countries with ease. Moreover, many top FX companies also allow you to use this money easily. For example, this means you’ll be able to pay suppliers or employees abroad without converting currency at all. And you can do all this using a single account that you manage through a smartphone app. - Virtual multi-currency accounts are cheap because they have very low fees and often no minimum balance requirements. Most importantly, this kind of account minimizes the need for currency exchange. Therefore, you won’t be losing money on FX rates all the time. Also, it’s imperative to note that FX companies offer much cheaper forex services. For example, an average international bank transfer will cost 3-7% of the transfer volume. However, using leading FX companies can cut this number to below 1%.
- As a small business owner, you should also appreciate multiple FX services offered by these companies. The most important of them is hedging, which reduces currency exposure risk significantly.
How Do Multi-Currency Accounts Work?
The idea beyond these accounts is very simple. By creating one of them, you basically get a dedicated digital bank-like account on the FX company’s platform. Technically, your money will be in the company’s accounts around many countries. But you’ll be able to manage it the same way you would have done with your own bank account.
In fact, you will be able to withdraw this money to your primary bank account easily. The fee for this service is usually quite low.
Your customers will need to make payments to the dedicated account details provided by the FX company. Usually, they will make a local transfer to the company’s account in their country. Then, the company will transfer an equivalent sum to your domestic account. This way, currency conversion costs and transfer fees can be minimized.
Why Use a Virtual USD Account in Particular?
For better or worse, USD remains the dominant international currency on the planet. Therefore, the majority of businesses that extend abroad in any way have to use it. However, opening an account in an American bank is, essentially, impossible for a foreigner. US banking regulations are rather stringent. Only a few FX companies are able to work legally in the US.
However, as such virtual accounts are not tied to the US soil, they are much easier and cheaper to open. In essence, this is the most cost-efficient solution for managing USD available to any SME. These accounts are even available to private customers, for example, travelers.
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