Should I Put My Money in a Domiciliary Account or in a Fixed Income Investment?

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Friday letters are usually dedicated to taking questions from our community. Do you have a question for us? Please feel free to send an e-mail to info@themoneyafrica.com or a DM to any of our social media channels.

Question

Most currencies are appreciating against my local currency. Some of my friends have advised me to open a dollar account. But I’m wary of the account fees and charges. What's the best thing to do? How do I save/invest in dollars? 

Answer

Saving and investing in higher valued currencies is a smart move to guard your money from currency depreciation. Higher valued currencies are those that have shown steady improvement in value over time, such as the dollar, pound, euros, etc.

In order to guard your money from currency depreciation, there are two options available:

• Saving in a domiciliary account

• Investing in dollar denominated fixed income securities like bonds, treasury bills, etc.

Saving in a domiciliary account most times comes at a cost, especially when considering fees and charges. However, some offer interest on your savings.

Fixed income securities are low-risk investments that could serve as an alternative to saving in a domiciliary account. There are no account fees or charges for fixed income. However, fixed income securities are prone to interest rate risks. Interest rate risk occurs when rates rise above when you purchased your fixed income investment. When interest rates rise, fixed income investments are more profitable for new entrants. However, for someone who has invested before the rise in rates, he/she is in an unfavourable position. This is because his/her funds are fixed, and cannot be withdrawn to take advantage of the new rates.

The fact that there are no fees or charges attached to fixed income investments does not mean they are generally considered as a better alternative to saving in a domiciliary account. Therefore, in order to make the best decision, it is advisable that you make proper enquiries concerning the terms and conditions attached to your domiciliary account, and weigh it against purchasing dollar denominated fixed income investments. 

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Question

I will be moving to Canada in September and I have kept some funds for my relocation. A friend suggested that I invest the money so it can grow between now and September.  What’s your advice?

Answer 

Since the funds are for your relocation, it is best you leave it in a flexible low-risk investment, such  as a savings account. This is not the money you should be using for any short-term investments.

Investments should be done with a long-term mindset. This is because of the potential risks involved. In order to generate reasonable returns, one needs to allow time for investments to grow. 

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