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Diversify your savings with foreign bank accounts

The right offshore account can help minimize financial risk.

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Saving or investing overseas lets you access different financial products and interest rates while protecting you against potential economic downturns. And because foreign banks like attracting overseas money, you have plenty of options.

Why invest overseas?

If all your money is tied up in American investments whether it’s in shares, property, cash or a combination of the three you’re highly exposed if the local economy takes a downturn.

Putting money into overseas accounts allows you to diversify your savings, providing protection against any dips in the US economy.

Investing overseas also lets you access different accounts, services and benefits that might not be available in the US. For example, you can take advantage of better interest rates elsewhere or get in at the ground floor of a foreign economy that’s set for rapid growth in the near future.

Do banks want foreign customers?

Yes. It’s in any bank’s best interests to attract money from wealthy customers all over the world. If you’ve figured out that there’s an attractive opportunity for foreign investors in another country, chances are there’s a bank that’s figured out the same thing and is eager for your business.

How do banks attract foreign customers?

Many global banks operate specialized international banking units to help make it as simple and stress-free as possible to open an overseas account.

For example, with a global presence in 82 countries and territories, HSBC’s international banking service can help customers with cross-border banking, overseas investment opportunities and buying property outside the US. And Citibank offers services to help clients open foreign bank accounts.

There are also thousands of other local banks in countries all over the world looking to attract overseas investors.

Foreign bank account reporting requirements

In recent years, there’s been a determined focus by the US government and countries around the world on tracking down undisclosed foreign bank accounts. As the 2016 Panama Papers data leak showed, wealthy people sometimes use foreign bank accounts to hide money from the government and evade taxes.

Through the Foreign Account Tax Compliance Act (FATCA), all banks must report the following accountholder information to the IRS each year:

  • Account numbers
  • Balances
  • Names
  • Addresses
  • Identification numbers

If you fail to disclose or pay taxes on your account after the bank has reported it to the IRS, this is considered money laundering and the US government could bring civil and criminal charges against you. That’s where the Financial Crimes Enforcement Network (FinCEN) comes in. You’re required to file a report with this regulatory agency once a year if your foreign bank account balance exceeds $10,000.

FinCEN Form 114 (FBAR) and Form 8938

While it’s completely legal for US citizens to open a foreign bank account, you’ll need to file a Report of Foreign Bank and Financial Accounts (FBAR) — now called FinCEN Form 114 — if the total of your overseas accounts held more than $10,000 at any point in the past year. If your foreign accounts meet certain criteria, you may also need to file Form 8938.

This table breaks down what forms you need to file, when they’re due and how to file them:

FormWho needs to file it?Where to find itWhen it’s dueWhere to file
FinCEN Form 114 (formerly known as FBAR)U.S. citizens, resident aliens, trusts, estates and domestic entities that own foreign bank account assets that exceed $10,000 at any time during the yearOn the FinCEN websiteApril 15 (or October 15 with an extension)Electronically with FinCEN’s BSA E-Filing System
Form 8938If you live in the US:

  • Single or married filing separately: If account balance was more than $50,000 on the last day of the year or more than $75,000 at any time during the year.
  • Married filing jointly: If account balance was more than $100,000 on the last day of the year or more than $150,000 at any time during the year.

If you live outside the US:

  • Single or married filing separately: If account balance was more than $200,000 on the last day of the year or more than $300,000 at any time during the year.
  • Married filing jointly: If account balance was more than $400,000 on the last day of the year or more than $600,000 at any time during the year.
On the IRS websiteApril 15 (or when your federal tax return is due)Attach it to your federal tax return

How do I compare and choose foreign bank accounts?

Before choosing a foreign bank account, factor in:

The regulations in the country

The regulations that national governments impose on foreign investors differ greatly from one country to the next, so you’ll need to research a country’s regulatory structure before deciding if it’s the right destination for your money. Is it easy for foreign citizens to open an account? How will the account be treated by local tax authorities? Is the banking industry in the country stable, secure and well regulated?

Political or environmental risk

Political and economic instability can spell disaster for a country’s foreign investors, so make sure you choose a country with minimal upheaval or risk of civil unrest or economic collapse. You’ll also want to factor in environmental risk — natural disasters can have a severe impact on the local economy, especially in smaller countries.

The language barrier

Don’t underestimate the difficulties that the language barrier may pose when establishing and maintaining an overseas account. Look for a bank that is capable of producing account statements, overviews and tax reports in English.

The safety of the bank

Once you’ve chosen a country you can start looking at the products and services offered by individual banks. How long has the bank been operating? Is it properly regulated by the relevant authority? Does it specialize in managing accounts for foreign investors? Look for a safe, stable and insured bank.

The type of account you want

Next, consider the type of account you want, such as a checking account, savings account or investment account. A savings account will let you take advantage of a country’s high interest rates, while a fee-free checking account can be useful for managing overseas purchases.

Account features

Look at account interest rates, fees and benefits to see which one stands out from the rest. Also remember to examine how easy a financial institution’s online banking portal is to use it’ll likely be crucial to managing your money.

Account access and management

Finally, compare the ways in which you can access the money in your account. Is the account accessible via phone and online banking? Does the bank in question have any branches in the US? How easy will it be to withdraw funds and close your account if necessary?

Tips for offshore banking

Before opening an overseas bank account:

  • Ask for advice. Ask a financial adviser or accountant for advice on choosing a country and a foreign bank account to avoid potential pitfalls and make an informed choice.
  • Consider a local expert. If you’ve decided to pursue investment opportunities in a particular country, you may want to enlist a financial planner or investment adviser with local knowledge in that country. He or she will be able to talk you through the regulatory requirements, opportunities and risks of the local investment market.

Bottom line

There are banks all over the world willing to accept money from American investors. Research your options and compare rates against US savings accounts before choosing a new bank.

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