Dual Currency Investment - My Experience

I wanted to place a fixed deposit in New Zealand Dollars to enjoy a higher interest rate.

The relationship manager of the bank tried to get me to invest in a Dual Currency Deposit. She wanted to get the currency specialist to see me and explain the product.

There was no need for a visit. I was able to find the description of the product from the website. Here are the key facts.

Basically, it offers a slightly higher interest rate, but on maturity I get the weaker of the two currencies.

By earning a slightly higher interest rate, I forego any appreciation in the New Zealand dollar. On the other hand, if this currency drops, I have to bear the entire loss.

I decided against the Dual Currency deposit. I prefer to have a lower interest rate and enjoy the full impact of any appreciation in the currency (while taking the loss on a depreciation).

Here is the explanatory note:

Dual Currency Plus is not a deposit but an investment product. With Dual Currency Plus, the principal sum and returns are repayable either in the currency in which the investment is made (“base currency”) or an alternative currency (“linked currency”) at maturity. Early withdrawal of Dual Currency Plus is not permitted. Dual Currency Plus is inherently speculative in nature and carries risks. In particular, foreign currency market movements are unpredictable.

If the proceeds at maturity are paid in the linked currency (as opposed to the base currency), there is a possibility that you will suffer a loss on your principal sum when compared with the amount of the base currency initially invested.

As your investment is denominated in a foreign currency, you are advised to consider the impact of any foreign exchange risk on the net returns of your investment. Foreign exchange controls may be imposed by the country issuing the foreign currency from time to time and may delay or prevent the repayment of principal amount to you.