Updated: Nov 9
“Banking establishments are more dangerous than standing armies” - Thomas Jefferson
One of the most important considerations as you plan your move overseas is banking. Should you open new bank accounts abroad? If so, how easy is it to do? What about your American accounts: should you keep them open, or would it be more beneficial to close them?
It’s right to ask these questions while planning your move abroad, as in some cases the decisions you make can result in paying more or less tax after you move. With the right advice though, it’s straightforward to make decisions in your best interest.
In this article, you’ll learn about:
• Should you keep your US bank account when moving abroad?
• Should expats open a foreign bank account?
• How can expats open a foreign bank account?
• Should expats consider a fintech (online-only) bank account?
Should you keep your US bank account when moving abroad?
When moving abroad, most expats wonder whether it’s worth keeping their bank accounts open back in the states.
The main advantages of doing so are that it helps you to maintain your US credit score, it allows you to pay US bills and make transfers to other US bank accounts easily, and it allows you to receive payments from other US accounts without paying bank or currency conversion fees.
If your stateside bank won't permit you to use a foreign address on your account, you can use credit unions such as the State Department Federal Credit Union (SDFCU) through organizations like American Citizens Abroad (ACA) to open an account.
Having an active American bank account also gives you access to products and services that are only available in the US. Some products are available in the US before the rest of the world, too - such as new iPhones, for example!
It often depends on how long you’re moving abroad for, though. If you know that you’ll be back in a year or two, then keeping your US accounts active will save you the hassle of opening new ones when you return.
On the other hand, one possible scenario when keeping your US bank accounts active while abroad is that you may still pay state income taxes if the accounts are located in a state such as New York, California, South Carolina, Virginia, and New Mexico. Some expats in fact choose to relocate to a low or no-tax state before moving abroad, so as to be able to keep their US financial accounts without paying state taxes when they move abroad.
You might also consider changing your US bank to one that charges less to withdraw and transfer money internationally. Chase Bank is one example of a global banks that caters to expats, and so is worth considering in this respect, in addition to the aforementioned option of opening an account with the SDFCU through the ACA. Citibank also reimburses you for charges incurred when using ATMs out of their network overseas.
Should expats open a foreign bank account?
Whether expats should open a bank account in the country they’re moving to depends on your circumstances, but if you’ll be based in a single place abroad for a considerable length of time, then you’ll probably need to.
If you are going to be working for a foreign employer, or starting a business abroad, a foreign bank account is essential.
Furthermore, many basic everyday necessities of living abroad will necessitate having a foreign account, such as renting or buying a home, or paying bills and for services.
Having a foreign bank account also means you won’t be charged every time you use your bank card, including fees and currency conversion costs. Many American banks charge fees between 3-5% for each purchase made overseas, for example.
How can expats open a foreign bank account?
While the rules and requirements vary depending on which country you’re in, more often than not banks abroad are looking for the same information as an American bank.
So to open an account as an expat, most foreign banks will want to see proof of ID, such as a driver’s license or passport, and proof of a permanent local address. Some may also ask to see proof of your income, or a local tax identification number.
As an example; if you’re an expat living in Seoul and you’re opening a South Korean bank account, you’ll need your passport, your visa, your Alien Registration card, a copy of your address in English and Korean, a certificate of employment and a Korean phone number. While not every country has requirements as stringent as this, the point is that you should always do your research and gather what you need beforehand.
Some banks let you open your account online without the need to go to a branch. You can normally check the bank’s requirements on their website.
FBAR and FATCA. FBAR and FATCA are reporting requirements for Americans with overseas accounts. Whether you have to file these forms from abroad with your US tax return is based on whether the combined values of all of your non-US financial accounts exceeds the minimum reporting thresholds at any time during a year, which start at $10,000 for FBAR filing. This doesn’t mean having to pay US tax on your overseas bank balances, it’s just a reporting obligation, but an important one to be aware of!
Should expats consider a fintech (online-only) bank account?
While traditional banks offer a myriad of account types and services, another option for expats is a fintech bank account.
Opening an account with a fintech company is often quicker and easier than a traditional retail bank, and the process normally involves just uploading some photos of your ID and other documents in a mobile app.
You may also have to go through an identification process where you need to show an ID or passport over live video. Alternatively, some companies ask you to take a selfie in their app to verify that you are the same person as the ID you provide.
Expats often wonder whether fintech banking is as secure as traditional banking. In fact, fintech companies have some of the best security available, by necessity to generate customer trust, and account balances are often guaranteed by local governments if the bank fails for any reason, similarly to traditional banks.
Fintech banks are also proponents of enhanced security measures such as two-factor authentication and biometric identification. Another useful security feature that they offer is the ability to turn off your card instantly in the app, in case it’s lost or stolen. Of course, one drawback of using a fintech is that these institutions are not banks, and so while great for sending/receiving funds, those funds would not be protected in the case of bankruptcy.
Whether or not you keep your account in the US open depends on a range of factors, including whether you expect to return to live in the US (and, if so, when), whether you’ll be visiting regularly, what state you live in (and so whether having an account could mean paying state taxes from abroad), and whether you’ll need to receive money or pay bills in the US.
Whether you keep your US account or not, most expats will also need to open a bank account abroad, either for living expenses or to receive overseas income.
Whether you choose a traditional or fintech bank for your overseas banking will depend on your requirements. Many expats choose to use a fintech provider when they first arrive, due to the ease of opening them, then they open an account at a traditional bank later on when they need to access other traditional banking services, such as credit, insurance and mortgages, all three of which often serve a crucial function of helping to minimize costs while building your life in your new host country.
Opening a bank account abroad can trigger FBAR and FATCA reporting in the US, however your accountant will be able to take care of these requirements for you along with your tax return.
Your financial advisor can help you plan your banking, based on your situation.
DUNHILL FINANCIAL, LLC IS A REGISTERED INVESTMENT ADVISER. INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.
Copyright © 2022 Dunhill Financial. All rights reserved.