A multi-currency account looks like one account holding several currencies at once. The structure underneath is closer to a set of separate accounts presented through a single interface.
Separate balances, not a single convertible pot
Each currency balance exists independently. Money is not converted until the holder instructs it, and until then each balance behaves like an ordinary account in that currency.
This matters because interest, protection and access differ by currency. A balance in one currency may earn nothing while another earns the local policy rate.
Spending from the account draws on the matching balance if one exists. If it does not, a conversion happens automatically at the provider's rate.
Where the money is actually held
A provider that is not a bank in a given country holds customer funds with a partner bank there. The customer's relationship is with the provider, and the provider's is with the bank.
Under a safeguarding arrangement, those funds are kept separate from the provider's own money and cannot be used to fund its business. That is different from deposit insurance.
Deposit guarantee schemes typically cover accounts at licensed banks. Whether a particular balance is covered, and by which country's scheme, depends on how the product is structured and varies by jurisdiction.
How the local account details work
Many providers supply local account identifiers in several countries, so a customer can receive payments as a domestic transfer rather than an international one. The payer avoids cross-border fees entirely.
The identifier is usually issued through the partner bank and points to a pooled account, with the provider allocating incoming funds internally. The payer sees a normal domestic transfer.
Some payment types are still rejected because the pooled structure does not support them. Direct debits and certain government payments are common examples.
What the conversion actually costs
Providers quote a rate and often a separate fee. The meaningful comparison is the total amount received in the target currency, not either component alone.
Rates for major currency pairs are close to the interbank market during trading hours. Spreads widen for less-traded pairs and outside market hours, when the provider is carrying more risk.
Weekend and holiday conversions typically carry an additional margin for the same reason. Timing a conversion for a weekday often costs less than any fee negotiation.
Why holding a balance has its own consequences
An unconverted balance is an open currency position. Its value in the holder's home currency changes daily whether or not any transaction occurs.
For someone with regular income and spending in the same foreign currency, holding the balance avoids repeated conversion costs. For someone who converts eventually anyway, it is simply an unhedged exposure.
Tax treatment of gains on foreign currency balances differs by country and changes over time. The question is worth confirming locally rather than assuming.