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Maximize Benefits Of Banking Without Borders

Nations may still be divided by closely watched boundaries and vast oceans, but the global economy has no borders, and your bank account need not, either.

Banks around the world today offer international, multi-currency accounts. Millions of international travelers, business professionals and investors enjoy the benefits of these accounts. You an choose among and open many of these accounts over the internet, though you probably will need to ship some documentation to the bank by mail or overnight express.

If you are an American working or traveling abroad, it is a great convenience to have a bank account denominated in the local currency to meet daily expenses. HSBC Offshore, a part of HSBC Holdings, one of the world’s largest banks, currently offers an international bank account that can be denominated in euros, sterling and various other currencies. A checkbook and debit card provide easy access to your money, although HSBC does not allow debit card access to accounts denominated in euros.

If you need to have debit card access to your euros, you can open an account with RBS International, a division of the Royal Bank of Scotland Group. This account offers a Euro Visa card, which is settled at the end of each month by a single debit. You can get more information on this RBS account by visiting www.rbsinternational.com. Various other banks also have international banking services with offerings, including Citibank International Personal Bank, Barclays iBank and UBS International.

A foreign bank account can also serve as a currency hedge.  For example, if you are a U.S. citizen planning a trip to Hong Kong, you can open a Citibank International account denominated in Hong Kong dollars to avoid any major declines in the U.S. dollar before the trip. This may be currency speculation, but when planning an international trip on a budget, it can be an effective tool.

If you are unhappy with the interest rates offered by U.S. banks, you can use an overseas account to boost the yield on your spare cash. Interest rates in the United States are near historic lows, but a savings account denominated in euros will earn European rates, which are currently much higher. Last month, a euro account with HSBC Offshore was yielding 3.64 percent. The same account in U.S. dollars was yielding only 1.39 percent. That is a 2.25 percent interest rate spread, or said another way, $22,500 in interest income on a $1 million account.

The Australian dollar was yielding 4.625 percent, an even greater spread of 3.235 percent with the U.S. dollar rate. Table 1 shows the applicable rates for online currency savings accounts and one-year fixed deposit accounts offered by HSBC Offshore in September.

Foreign interest rates can change as rapidly as rates in the U.S., and, just as at home, rates will vary from bank to bank. For example, a one-year fixed deposit account denominated in euros with HSBC Offshore recently yielded 3.99 percent, while the same account offered by Citibank International offered a yield of 4.73 percent. A little rate shopping helps.

Be cautious — there are risks in holding foreign currency accounts. Although you may earn a greater rate of interest on your money, local inflation and currency declines can quickly erode any profit. For example, if you earn a 5 percent yield on your Canadian dollar account, but the U.S. dollar appreciates more than 5 percent against the Canadian currency, you will have a net loss, assuming you eventually convert your money back to U.S. dollars. Government policies, inflation and local economic conditions can have significant impacts on a currency’s strength; these risks must be carefully considered.

It is also important to be aware of account fees. When initially funding your account, you will have to pay a currency conversion fee in the form of a spread between the current exchange rate and the applicable rate at which the bank will actually convert your money. You usually have the option to convert with either the sending or receiving bank, and you should always check the rates for both, as the difference can be substantial.

Don’t forget about Uncle Sam. U.S. citizens usually must pay tax on worldwide income, including interest and dividends earned abroad. Regardless of your tax situation, there is one requirement you must meet. If at any time during the year the total value of your foreign accounts exceeds $10,000, you must report all of your accounts to the U.S. Treasury Department. This is done by using form TDF 90-22.1, Report of Foreign Bank and Financial Authority (FBAR). This form is due June 30 for each year your foreign accounts exceed the filing threshold, with no option to request an extension.

The penalties for not filing are severe. The maximum penalty for a willful violation is the greater of $100,000 or 50 percent of the aggregate account balance at the time of the violation. Even a non-willful violation can result in a $10,000 penalty for each misfiling. The simple fact is that you need to pay close attention to your international accounts and make sure you are in compliance with U.S. regulations.

Americans must disclose the details of their foreign accounts for two principal reasons. First, the government expects us to pay taxes on interest and dividends we earn abroad, but it cannot make foreign banks report this income to the Internal Revenue Service on a Form 1099, as domestic banks must. Second, authorities want to deter economic crimes such as money laundering, embezzlement and tax evasion.

Many Americans associate international accounts with bank secrecy, but U.S. authorities have been cracking down on offshore banks, and hiding money has become increasingly difficult. UBS, headquartered in Switzerland, is currently under investigation for its offshore account practices. According to a staff report prepared this summer for a Senate investigations subcommittee, UBS assisted thousands of Americans in hiding an estimated $18 billion in 19,000 accounts from the IRS. A U.S. government official estimated this has resulted in $300 million in lost tax revenue. As a result of the investigation, UBS has since stopped offering offshore banking services to U.S. clients.

Whether you are an international traveler, business professional or investor, foreign bank accounts provide several benefits. If you are ready to open your own account, remember this: be aware of the risks, avoid excessive fees and don’t forget to pay your taxes. Most of all, remember that your bank account truly need have no borders.

Chief Investment Officer and Senior Client Service Manager Anthony D. Criscuolo, based out of Atlanta, contributed several chapters to our firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 7, “Grandchildren”; Chapter 9, “Life Insurance”; and Chapter 15, “Investment Approaches And Philosophy.” He was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.
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