Euro account – How to open and why I use it?


When you invest in Europe it’s important to have a euro account because it has some benefits that can give you slightly higher returns. 

In this blog post, I will share with you how to open a euro account and the advantages.

Let’s look further into it… 🙂 💰

What is a euro account?

 

Euro account

Most of us are using an account associated with the domestic currency or the national currency. Nevertheless, we have the opportunity to open a foreign currency account online.

A euro account is very practical for you when you invest in Europe because most investment opportunities are in euros.

It’s a bank account for euros offered by an online provider such as Transferwise.

 

You can use this account if you plan to make transactions in this currency. There are multiple benefits from opening a euro account. Some of the primary benefits are:

  •  You can eliminate potential transaction fees when you send money to the eurozone
  •  You can eliminate the potential risk of exchange rate fluctuations
  • It can be a practical way if you plan to invest in the Euromarkets

How to open a euro account?

 

The process of opening a euro account is rather easy and can be finished in a short time online.

Transferwise Euro account

 

I use the “borderless account” from TransferWise because they offer a free euro account with IBAN number.

You can actually hold up to +40 currencies and have separate bank accounts. It’s very smart.

You can exchange currencies with the real, mid-market exchange rate.

Opening a foreign currency account on TransferWise will require that you verify your account by uploading the needed documents. After you finish this process, then it is quite easy to open a euro account or an account in a couple of dozen other currencies.

Subsequently, you will be assigned a bank account number for the Eurozone, US, UK, Australia, or New Zealand.

Understand the transaction costs and save money 🤑

 

Save money

We should all pay attention to the small fees and transaction costs because they may “eat” into the profit.

For instance, you may hear that the transaction fee is only 0.5% or 1%; this may seem to be a low fee. But, imagine that you have earned a 5% return before paying any relevant costs and fees, are these fees still low?

They are directly decreasing the profit you have made. Therefore, the fees on the platforms are an important factor to consider when investing.

Maybe it’s time for you to check what fees you have to pay?

It cost me 0% to transfer money to my index funds but I have an annual cost of 0.5%. My P2P lending investments have 0% in fees.

 

Seems good? However…

 

You should also consider the exchange rate cost.

This is the cost that occurs in the process of converting your money from one currency into another currency (e.g., dollars to euros and euros to dollars).

Because of the volatility of the exchange rates, the fluctuations can be in your favor, or you could lose additional money.

 

Dollar/euro exchange rate – an example

 

Let’s see an example of the dollar/euro exchange rate. On the day of investing, the USD/EUR exchange rate is 0.902, meaning that you get 0.902 euros for one dollar.

You are planning to invest $10,000 in Europe; hence, you need to convert your money to euros, and you will have 9,020 euros. At the date when you exchange dollars for euros, the reverse rate (euro/dollar) is 1.10864.

After some time, you decide to withdraw your initial investment (you exchange now the initial investment of 9,020 euros to dollars), and you can see yourself in one of the following two situations, the exchange rate has increased or decreased.

If it remains the same, then you neither gain nor lose from the exchange rate. The highest and the lowest 52-week range for the USD/EUR pair in 2019 was 1.0879 – 1.1572.

 

Hence, you could have exchanged euros for dollars as follows:

Situation A: 9020 x 1.1572 = $10,437.00 (the dollar is weaker)

Situation B: 9020 x 1.0879 = $9,812.00 (the dollar is stronger)

You can see that when the exchange rate is not in our favor, we can “lose” $188 ($10,000.00 less $9,812.00). We can also gain an additional $437 ($10,437.00 – $10,000.00) if we can wait for a better conversion rate.

Losing $188 is by no means acceptable for me, and it should not be acceptable for you. This would mean that we have lost 1.88 percent of the value of the initial deposit.

So, whatever return we have made by investing the amount of $10,000, it will be decreased by this loss from the exchange rate. Also, the opposite is true if we convert the initial investment in periods of stronger euro. We could add an extra $437 on any return generated from the investment activity.

Needless to say, is that this is one of the primary reasons why I want to have a euro account.

Moreover, the euro account enables me to easily invest when I identify an opportunity because I don’t have to convert currencies instantly at unfavorable rates and fees. I will have the euros available when an investment opportunity arises 🙂

Exchange rate alert option at Transferwise

 

I must say that the rate alert option available on TransferWise is a very practical option available to its users. This can save you some money.

Instead of constantly checking the exchange rate while waiting for a good rate, I can set the rate I want, and TransferWise will send me an alert. Hence, I will be able to exchange my funds for an exchange rate of my choice.

How to choose the best euro account?

 

Irrespective of where you open your euro account, you still need to make sure that you will select a euro account with the best terms for your needs. Some of the most important characteristics of the euro account which I personally consider are:

  • The minimum balance required – I don’t want to be “forced” to maintain a higher level of balance; the lower, the better, zero would be great. This way, I will be able to invest all of my money.
  • Transaction fees – are eating up my profit, so I will always consider the options with the lowest fees.
  • Exchange rates – I want to limit the loss coming from the exchange rate because it will lower my investment return.
  • Transfer amount – when investing, I want to make sure that I am able to transfer the amount of money in accordance with my needs and more (Who knows, maybe I will hit the jackpot by investing in the next big thing). 

TransferWise account vs. Bank account

 

Are you considering talking to your bank? Be careful… 

Getting familiar with the options available for opening an account denominated in euros, you should decide whether to use a bank or an online payment processor. While both of them have certain pros and cons, I would go with the payment processor.

The reason for such a decision is that the cons of euro account on TransferWise outweigh the potential drawbacks of a bank account. To be more precise, opening an account through a payment provider will offer:

  •  Lower transaction fees compared to a bank, which can charge different fees. Although these fees may seem to be low, they could add up over time. Why would I willingly lose a portion of my return to pay for bank fees?
  • Faster transfer since TransferWise core business activity is the transfer of funds, and they are trying to be the best at it. Transferring money through a bank may take a bit longer, even up to a couple of business days.
  • It’s easy to use and convert your funds in different currencies.
  • Possibility to get better exchange rates compared with the rates offered by most banks.
  • The availability of exchange rate alerts option (Yes, I know I am saying this for the second time, but I like this alert. I don’t want to waste my time by constantly checking for the exchange rate, I want to use it for my investment decisions.)

That’s it 🙂
I hope you liked this blog post about the Euro account. 

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Peter Michael

I'm an investor and the blogger behind My Investment Blog. I write about investment, financial independence, personal finance, and personal development. I try to combine the topics and show my journey towards financial freedom.

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