Choosing an Overseas Bank: First, Ask These Questions
Colleen Murphy, International Man
International Man readers are a savvy bunch, well-familiar with the benefits of a foreign bank account. To recap just a few: financial diversification, access to investment opportunities in other countries, a measure of privacy, and the potential to earn a higher interest rate than your low-yield “savings” account at home. The advantages are numerous, but so are the considerations. Will my money be safe? How will I access the funds? How do I start the process?
Answers to these questions depend entirely on your personal circumstances, and anyone beginning to diversify should seek advice from a qualified professional. Before seeking (and paying) for any advice, it helps to think seriously about your needs and goals. Considering the following points will save you time and money.
Step One: Where in the world do you want to bank?
(Also known as: The World ISN’T Your Oyster, but you do have options)
- Currency: decide which currency, or currencies, you wish to hold. Many banks allow you to hold accounts in multiple currencies; some even offer multiple currency accounts under one account number. A multicurrency account allows you to receive income or make payments in different currencies, flexibly shift between currencies and take advantage of favorable exchange rates, and earn higher returns on your foreign currency savings.
- Language: your options increase with the number of languages you speak. Only pursue a country where you speak the local language fluently or where English is widely spoken, such as in Hong Kong or Singapore. (When I lived in Japan, I had to call upon the kindness of my colleagues to assist with every single banking matter more complicated than an ATM withdrawal. While it made for some rich cultural experiences – imagine asking your boss if you can borrow his secretary for an afternoon trip to the bank – it greatly limited the activities I could undertake, and it meant that I had no privacy.)
- History: understand the political and economic history of each jurisdiction you are considering. Political unrest, currency devaluations and recessions do not make for a solid banking community.
- Infrastructure: reliable electricity, fast Internet, well-maintained roads and modern transportation all mean better service for customers. You don’t want access to your funds to be compromised by power failures or unscheduled Internet outages.
Step Two: What Kind of Bank Suits You?
Now that you have a few ideas of where in the world you might want to bank, consider what sort of financial institution is right for you. Should you choose a large multinational with ATMs all over the world, or a smaller institution that might fly under the proverbial radar?
Again, it pays to think about your needs and your intentions.
- Convenience: is this a bolthole account, for savings only, or do you intend to transact with it? If it’s the former, investigate minimum balance requirements. For the latter, transaction fees and ease of online banking are critical considerations. Also consider the time zone difference: a bank that offers 24/7 customer service will be far more accessible than one that maintains the local equivalent of Monday-Friday, 9-5.
- Is there a government guarantee scheme in place, similar to FDIC insurance in the USA? This might be unlikely, but it pays to do your research. Australia, for example, instituted a government guarantee for a period of time to bolster confidence in the country’s financial institutions. Even if your chosen country or jurisdiction offers a guarantee, ensure that your bank and deposit size qualify. (Of course, in the event of a failure you’ll be beholden to the schedule and vagaries of governmental processes before you’ll see any money back.)
- What total package of services do you require? Plain vanilla checking and savings, trust facilities, mortgages and loans, brokerage services, access to deal flow, or precious metal storage?
- Savvy: seek out a bank that’s used to dealing with foreigners. If you’re American, familiarize yourself with the cumbersome reporting requirements and ensure you will be compliant.
Step Three: What’s the Bank Like?
Now that you have a list of jurisdictions and an idea of what type of bank is appropriate for you, it’s time to compile a short list and interview the candidates.
If you’re struggling with this step, consider this recent ranking of the world’s 50 safest banks as a starting point. Personal recommendations from sources you trust are also critical.
Here are a few questions to ask any potential steward of your hard-earned money.
- What types of accounts are available to foreigners?
- Are there any restrictions on foreigners’ investments? What about investors with US passports?
- What fees will my account attract?
- Will any taxes be withheld?
- How will I transact with the bank? Are instructions accepted by telephone, email or fax?
- Is secure Internet banking available, in English?
- In the event of the bank’s insolvency, will my account be insured against loss?
If you’re not 100% comfortable with the answers, then it’s not the bank for you.
Finally, some readers will no doubt ask about opening an account without visiting the country. To that I say: think again.
Banks around the world are required to perform “Know Your Customer” due diligence. You, likewise, should know your bank. In business and in life in general, there’s no substitute for meeting in-person. Cash-in those frequent flier miles (they’re there to be used, not stockpiled) and visit the jurisdictions you’re curious about.
When you’re on the ground – and in between pool sessions, massages or fabulous meals – visit each bank individually. Your hard-earned money is going to go directly into that country’s economy, helping a local to buy a house or start a business (or, if you don’t choose wisely, for a more nefarious use). Banks work because we trust them, for better or for worse. Only you can decide where to place that trust.
Now, go forth and diversify!
[Editor's Note: Colleen Murphy is a contributor to World Money Analyst, the popular investment letter that lets readers learn and profit from a team of successful investors and analysts as they uncover the best and brightest opportunities around the globe. Learn more about our special introductory offer here.