Marks, Yen, Francs, Pounds: It's Money In Your Bank

For years, about the only way Americans could invest in foreign currencies was to purchase dollar-denominated shares in overseas bond mutual funds or buy the currencies through foreign banks and hold on to them.

But a change in U. S. banking laws last year opened up a more efficient option: foreign-currency bank accounts. Most of these accounts are geared toward small businesses with overseas operations. But Citibank in New York and Mark Twain Bancshares in St. Louis allow investors to buy German marks, yen, and other currencies. The Federal Deposit Insurance Corp. insures the accounts for $100,000.

DOUBLE GAIN. Mark Twain requires a minimum deposit of $20,000, which you can invest in most foreign-currency timed deposits. Maturities range from three months to a year. Citibank's MultiMoney account has a $25,000 minimum and restricts your investments to six currencies: marks, yen, pounds, Swiss francs, and Canadian and Australian dollars. Citibank customers can alsoinvest in money-market accounts consisting of individual foreign currencies.

A foreign-currency investment now allows you to earn higher yields than those paid by U. S. certificates of deposit. By opening a $20,000 account today in pounds sterling, for instance, you could earn 10.25% annually in interest, or $2,050 a year, compared with the 6.0% to 6.2% yield for a dollar-denominated 12-month CD. Higher inflation abroad and foreign monetary policy contribute to the higher yields. Your account may also get a "currency kicker" if the dollar's value drops. If it falls 9%, your total return en the account above would be $3,902. Should the dollar rise, however, you could lose money.

Investors can put dollars in one currency and switch them to others without fees. There's no charge for opening a foreign cash account and no monthly management fee. Banks profit from each switch by selling the currencies at a slight premium over what they paid.

There are risks, of course. Banks don't monitor the accounts, although they will allow you to roll over your foreign timed deposits so you can avoid having to cash them in and realize a loss. And currencies can be extremely volatile. As the gulf war was winding down in mid-February, for instance, investors flocked to the dollar. The surge caused a corresponding 15% decline in foreign currencies.

For that reason, banks advise investors to be patient with their accounts and to restrict foreign currencies to less than 20% of their total investment portfolios. As for which way the dollar is going next, currency experts are divided. In a pinch, you could always flip a quarter--or a mark.

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