Interest rate in Singapore is too low. Is it safe to invest in foreign currency deposits?
If you invest in a fixed deposit denominated in a foreign currency, you take the risk of fluctuation in the exchange rate. For example, if you deposit a certain sum in New Zealand dollars for 1 year to earn 7% interest (compared to 2% in fixed deposit in Singapore Dollars), you will earn 5% more in the interest for 1 year. At the end of 1 year, if the New Zealand Dollar depreciates by 5% against the Singapore Dollar, you will earn the same net return of 2%. If the New Zealand Dollar depreciates by more than 5%, then you will lose on the deposit. If it depreciates by less than 5%, you will have a net return that is higher than 2%. If the New Zealand Dollar appreciates against the Singapore Dollar, you will get a double benefit – from the higher interest rate and from the higher exchange rate. It is difficult to predict the trend of the New Zealand Dollar. Even the currency experts are not able to predict the trend. Foreign currencies can be volatile. It has the potential to move up or d
