Chinese Bank Accounts and Other Foreign Currency Accounts

With the Chinese President visiting Washington, I thought this topic of opening a Chinese bank account would be interesting to discuss. A few days ago this Wall Street Journal article listed 5 reasons to open a Chinese bank account. I mentioned this article in the forum, and there was considerable discussion in this FW thread. As the article mentioned, the U.S. branch of Bank of China now makes this possible:

Bank of China here in the U.S. has started allowing American customers to open an account and to invest up to $4,000 per day-and a total of $20,000 a year-in Chinese yuan, or renminbi [RMB]. Until now, you had few options to hold money in yuan, which is a "closed" currency managed, and protected, by Beijing.

You can get more details at Bank of China's website. According to the New York City branch, "RMB accounts are covered by FDIC insurance." However, the bank's Los Angeles branch is not a FDIC member. Bank of China's New York branch is listed in the FDIC database. According to the bank, the service area is limited to the New York City metro area.

One of the five reasons to open a Chinese bank account mentioned in the WSJ article is that the yuan is likely to go up relative to the dollar due to China's manufacturing prowess and its "enormous trade surplus." Another reason mentioned is to diversify your portfolio.

EverBank Foreign Currency Accounts

EverBank has long advocated adding foreign currencies to diversify. They list several foreign currency deposit accounts including the Chinese renminbi. However, they don't offer CDs in the renminbi. It's only available in a money market account that doesn't pay any interest.

EverBank does offer some foreign currency accounts that pay interest rates much higher than what you can get in U.S. bank accounts. One example is the Australian dollar CD which currently has a rate of 3.63% for a 12-month term.

If your intention is to diversify, it seems to make sense not to limit yourself to one foreign currency. Many countries have more debt than you might think. This CIA World Factbook provides a list countries with the worst debt-to-GDP. The U.S. is #36 on the list.

These EverBank foreign currency accounts are FDIC insured. However, there is no insurance that covers loss due to currency value fluctuations. Some EverBank customers had major losses back in 2008 in their EverBank Icelandic Krona CDs. This was when Iceland's financial markets crashed. One customer described his loss in this blog post at OpenMarkets.org. He reported that his CD was closed early and the bank converted the CD from Kronas into dollars at an exchange rate that was very unfavorable.

Choosing currency accounts from larger countries and not limiting accounts to one currency can help reduce risks. That's why EverBank offers the WorldCurrency Basket CD. I did a review of this World Currency Basket CD a few years ago. One issue with these CDs is the cost of the currency conversions. There are other ways to get exposure to foreign currencies that can be less expensive. However, it should be noted that even though the CDs have short maturities, you can let the CDs be rolled over in the same currency without conversion costs.

Cathay Bank Foreign Currency Accounts

Another bank where you can open foreign currency deposit accounts is Cathay Bank. Here's how Cathay Bank describes their foreign currency time deposits on its website:

At Cathay Bank, we offer a wide choice of foreign currencies at competitive rates to meet your investment needs. Our flexible terms are from 1 month to 12 months. You can easily open a time deposit with no transaction or commission fee. Foreign currency time deposits are FDIC insured.

Cathay Bank has branches in many of the major U.S. cities some of which include Los Angeles, San Francisco, Chicago, Boston, New York and Houston.

If you know of other banks that offer foreign currency accounts, please leave a comment.