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Moving Abroad Guide

Moving Abroad Guide >

Expat Topics

Banking


 

Expats have a number of banking options open to them - from opening a local or offshore bank account to just maintaining an existing bank account in their country of origin.

Some people assume that they will be able to use their existing bank account abroad without issue or that opening a local account will be a straightforward process. However it is always wise to consider your future requirements in advance and plan accordingly in order to save not only time and effort but in many cases money too.

Remember to tell your bank and credit card companies that you are moving overseas and find out if they allow you to have an overseas address for your account and are prepared to send your statements there. If you close your account, remember to inform anyone that you have standing order or direct debit arrangements with. If you do keep an account with a bank in your home country, consider using one which offers internet banking facilities to make it easier to manage from abroad.

Most countries now have ATM networks which allow you to withdraw cash from your home country using debit or credit cards, although there may be a per transaction charge for this service. However, you will probably also find it convenient to open a bank account in your new country, and this may even be required by your employer. You will probably need to show your passport and employment details in order to open an account, and may be asked to make an initial minimum deposit. Find out whether there are restrictions on how much you can withdraw from your account each month.

Generally speaking you should be able to use internationally-recognized credit cards such as Visa and MasterCard in larger shops, restaurants and hotels around the world. However, practices do vary, and even in some western European countries, such as Germany, credit card payments are not usually accepted in stores, even large ones. Debit cards from your home country may not be recognized for payment overseas, but the Eurocard, a combined bank guarantee card and credit card, is generally accepted throughout Europe and can usually be obtained once you have established a good credit record with a European bank.

Outside cities and large towns, you will often find that cash is needed for most bills and purchases. However, there are a few countries where cash is hardly used even for small daily transactions, and debit cards are the norm – do your research before you go and avoid any embarrassing situations.

One major difference in banking practices is that while it is normal procedure to use personal cheques (checks) in the UK, USA and many non-European countries, which are generally made out to an individual or a company name, in northern European countries the standard method of payment is the Giro, which is made out to an account number rather than name, and submitted to the bank for payment rather than sent to the payee. Giros are in common use in Germany and the Scandinavian countries for bill payments.


Keeping Your Existing Bank Account

It is usually a good idea to maintain your existing bank account in your country of origin, particularly if your move abroad is for a fixed amount of time. It is not normally a good idea, however, to use it for day to day transactions while you are away. Having money paid in from abroad and using cash machines while you are in another country often incurs high charges. There are some banks which do not charge for cash machine (ATM) withdrawals in a foreign country, however, so it is always worth checking your own bank’s policy. If you intend to become a permanent resident in your destination country also check whether or not you still qualify for free banking or special rates (if applicable).

It can be advantageous to keep your existing bank account if you receive funds from an institution in your home country such as a private or state pension or some form of benefit payment. If you are moving to a country which has a reciprocal agreement with your home country, these can usually be paid directly to you there, but if not then an existing bank account at home will be required. You can then arrange for the funds to be transferred to your new bank account abroad, although this will incur charges and possibly currency conversion fees.

Keeping your existing bank account is also a good idea if you have gone abroad to earn money to send home, as this can just be transferred directly to the country of origin by your local bank. Expats should familiarise themselves with the exchange rates, as these change daily, and even if you transfer the same amount in the local currency, the amount that arrives in your home bank account is likely to fluctuate.

Having a bank account in your home country will also help to keep your credit facilities open while you are away. Provided you have maintained a healthy relationship with the bank and any credit card companies you should still be able to obtain credit if you return home.


Local Banking

Opening a local bank account is usually a good idea if you are moving to your new country to work. The regulations for opening a bank account vary from country to country but most will allow expats who are employed to open a basic current account that does not have debit card or credit facilities. Extra items such as employer references or bank references from your home country may be required if you want to have debit card facilities. Opening a basic current account is usually straightforward although you may need to make a small deposit. Some countries will also require you to have a local social security number or equivalent before you can open an account.

A local bank account has a number of benefits, not least of which is that it is usually easier for making payments such as rent, mortgage, utility or phone bills. Furthermore some organisations may insist on direct debit style payments from a local bank so such an account could be a necessity. In short, trying to manage without a local bank account for any length of time is often impractical and can prove costly.

Opening a local bank account and keeping to agreed account limits will also help to build a credit rating, a necessity should you wish to apply for a credit card, loan or mortgage at a later date.

When you open a local bank account you will need to have proof of identification and for some countries with strict immigration regulations, proof of approved residency status. The official notification of your social security number may be enough proof of identification in some cases. Other documentation that may be required includes a passport, driving licence or rent book.

The procedure for opening an account varies. Some banks may expect you to complete numerous forms, particularly if you want to apply for a debit card or credit facilities. In other cases it may just be a case of presenting your identification and giving your contact details. You should also be aware of the length of time it might take to open the account, in some countries the procedure can take no more than 15 minutes, while in others you may have to wait a few hours or even days while your details are processed.

If your existing bank account is with a bank that operates internationally then it may be possible to set up a local bank account prior to your move. This will also make transferring funds between the two countries much easier. Using the same bank may also make it easier if you decide to apply for a mortgage at a later date.

Also, be aware that although most foreign banks will accept a cheque in the currency of your home country, these can take several weeks to clear.

If you do not speak the language of the country that you are in, or if English is not widely spoken, opening a new bank account may be a challenging process. Most banks will have someone on the staff who speaks English, particularly in areas where there are large numbers of English speaking expats, but if you are in doubt consider taking along a friend or colleague who speaks the local language, especially of your banking needs are complex.

Fortunately, most cash machines (ATMs) will allow you to carry out your transactions in English, offering you the option to choose the language when you insert your card.


Current Accounts v Savings Accounts

It may be advisable for an expat to have both a current and savings account, particularly if they have moved abroad for work. A current account abroad can be used in the same way as your existing current account for daily expenses such as travel, groceries, household bills etc. though consumers should be aware that current accounts pay very little interest, if any, while the interest rates on savings accounts vary.

A savings account is useful if you have moved abroad in order to earn money to save, as is often the case with expats who have moved to countries where there is little or no income tax. Savings accounts are also fairly easy to open as they generally do not offer credit facilities such as overdrafts and as a result there are no credit checks to wait for.

If you are planning to stay long term in your new country then you may wish to save to buy a house and a savings account can help you to organise your finances accordingly. Having a current and savings account that are in credit should also help your credit rating, making the mortgage application process easier.

Both types of account should give you the option of transferring funds back to an existing account in your country of origin.


Offshore Banking

What Does ‘Offshore’ Mean?

‘Offshore’ refers to financial centres which specialise in investing funds for non-residents - either individual finances or corporate finances – in offshore companies. These are often called offshore financial centres or financial jurisdictions and may sometimes be referred to as OFCs. Despite the name, they are not limited to islands and many countries have what can be considered to be offshore financial facilities.

The International Monetary Fund defines an offshore jurisdiction as an economy that has a financial sector which is out of proportion to the population living there. In effect this includes a number of countries, including the UK and the United Kingdom although most people will opt for an OFC which offers tax breaks or specialist investments that cannot be found onshore.

Offshore jurisdictions are also often called tax havens, but there are some differences between the two. The concept of a tax haven is very general and tax havens are used as a place of residence in order for a person to pay less tax than they would in their country of origin. It is not necessary to live in an offshore jurisdiction in order to make investments that way. Many offshore jurisdictions now have procedures to allow various governments to have access to information if they suspect a person may be attempting to avoid paying tax and there are moves to take action against those jurisdictions which refuse to cooperate.


The Main Offshore Financial Centres

There are several OFCs which are very popular and these are mostly based in the Caribbean, though they can be found all over the world. Bermuda is known for insurance holdings and the registration of aircraft, while the British Virgin Islands have a large number of offshore companies. The Cayman Islands is popular with American investors.

Other OFCs include Jersey, in the Channel Islands, which is popular as a tax haven and has many lawyers and other professional advisors working in the offshore finance industry. Luxembourg is another European OFC which deals mainly in Eurobonds. Singapore is a popular OFC in the Far East and is known for hedge funds and the private banking sector.


Offshore Banks

Offshore banks often offer the user greater privacy and security and for this reason banks in countries like Switzerland are particularly popular, especially with wealthy individuals who live in countries where the political situation is not stable and need to keep their money safe from any attempt to appropriate it.

Some banks with offshore holdings can offer a higher rate of interest to the user as they have lower running costs. Government interference in onshore banking helps to keep interest rates lower, which means that there is less of a return for the consumer. Offshore banking also offers some nations the opportunity to compete with other countries on an international level, particularly if there is limited industry. Financial sectors grow well and some small developing nations are taking advantage of this, allowing them to develop a strong footing in the industry.

Offshore banks will generally make interest payments without deducting tax, leaving it up to the consumer to declare the interest as earnings and so organise their own tax payments. Some countries do not have a system of income tax, but this can be beneficial for those who do have to pay, although there are moves to stamp out the use of OFCs for tax evasion purposes.

There are some offshore banks that offer anonymous accounts and risk opportunities that may not be available through an onshore financial institution. They can also be linked to offshore companies and trusts which allow a greater degree of investment and more tax breaks for an individual.

There are those who believe that offshore banking creates competition within the industry where tax is concerned, though some say this does put pressure on smaller financial institutions to compete when it is not practical. Small countries that do not have large, well-established financial sectors may find it very difficult to offer similar benefits to an OFC.

However, there are a number of disadvantages to using an offshore bank. They are less secure from a financial point of view. For example, in recent years banks have collapsed in Iceland and many people who lost money were residents of other countries. Some were able to get their money back but there are some still waiting and the Icelandic authorities are giving priority to those of their own country. Many offshore banks offer compensation schemes which should cover investors in the event of a collapse so before using such an institution it is advisable to check that you are covered first. Compensation schemes are usually capped at a specific amount so canny investors are often advised to split their investments if the amount exceeds the compensation limit.

There is an ongoing association between offshore banking and the proceeds of illegal activities. This includes tax evasion and money laundering, although steps are being taken to limit this and monitor banking activity.

Offshore investors also have a geographical disadvantage as some OFCs are remote and not easily visited, so all transactions are carried out at a distance. A person does not have to visit the bank themselves though in order to open as an account as many banks now allow this to be done online.

Offshore banking also has an image of being reserved for the wealthier members of society. A simple savings account can be opened by anyone and there is no minimum income limit to do so. Most banks are working hard to assure consumers that their services are open to anyone.


Overseas Banking Cultures - Some “Dos” and “Don’ts” for Expats

For expats, having a local bank account will make your life a lot easier in terms of settling in and integrating. The good news is that generally speaking it’s easy to establish a good relationship with an overseas bank. Naturally though, many new expats initially find overseas banks a little baffling. Forms and documents in a foreign language, staff that understandably do not speak English, misunderstandings, strange processes and odd opening hours - all generate a sense of insecurity and uncertainty.

For the vast majority of expatriates these issues are minor and quickly overcome with experience. Once one knows the ropes these early glitches and confusions become amusing stories to be shared with friends and laughed at over a glass of wine. Yet for a small minority of expats, these initial ‘hiccups’ can set the tone for all future dealings with their local banks, and the situation can deteriorate rapidly into one of mutual irritation, frustration and mistrust.

So what can be done to get the best service and support from your bank overseas and avoid headaches?

Of course it’s possible for any bank branch in any country to be just a little ‘difficult’ or more rarely, plainly incompetent. Yet many of the difficulties that arise between expats and local banks come about simply because the expats concerned have not grasped at the outset just how different overseas banking cultures can be. As a result, they fail to develop a suitable approach to dealing with their local bank and trouble can start from the very first meeting.

One has to recognise that there are basically two banking cultures in the world today. Much of the English-speaking world has undergone a vast revolution in banking culture and technology over the past 30 years, with the result that many consumers now regard banking and its products as commodities. In other words, many people in the UK or USA don’t see going to the bank as much different to going to a supermarket. One goes in, looks around, chooses something, pays for it and takes it away.

Yet any English speaker much over 40 or 45 will remember when the bank was the central pillar of a local community and anything other than a routine visit was a serious business. The branch manager was a figure of power, respect, or even fear. Customers looking for loans or new accounts had to be deferential to the manager because they were as likely to be assessed on perception of their character and history with the bank as on how much they earned or what they wanted the loan for.

The first critical point to note is that this revolution did not happen in much of the rest of the world. The technology overseas may have changed but attitudes did not! Traditional banking culture has largely vanished today from countries such as the UK or USA, but in many other foreign countries it persists. New expats need to understand that, and develop tactics for dealing with it.

The second critical point to understand is that overseas banking is largely “personal relationship” based. Build a good face-to-face relationship with your bank and you’ll do well. Try and operate based on demands of ‘rights to products and services’ and you’ll struggle.

So, here are a few basic common sense “expat dos and don’ts” to try and help in starting and managing the very early stages of these international relationships.

Do:

· Ask local people for their recommendations as to a bank – don’t just ask fellow expats or assume that because a bank has an English speaker it is therefore the best bank.

· Remember that the culture of overseas personal banking is still predominantly savings rather than loan based. Opening that tiny monthly savings account will significantly enhance their image of you.

· Consider committing at the outset to getting at least some income from your old country paid into your new bank. Check exchange rates and security carefully but remember nothing shows better commitment to your new life and new bank than having income credited regularly into your new account.

· If you cannot speak the language to a reasonable extent, take someone with you who can.

· Remember that this is just a start - you need to build and maintain a relationship. Overseas banks want your business but not ‘at any price’. They are assessing you at the outset in terms of whether they want to do business with you, just as much as you are assessing them. Keep that in mind!

Don’t:

· Go overdrawn EVER without clearing it with them first. In many countries this is illegal and even where it is not, it suggests to them that you are not capable of managing your day-to-day affairs and are therefore either incompetent or untrustworthy.

· Start telling local banks that their services, products or charges compare unfavourably with “back home”.

· Ask them to do things the same way they’re done “back home “ – they can’t change their methods just because you ask them to.

· Treat them as supermarkets. Most overseas banks expect to know you and have a relationship before they start lending money.

· Demand grovelling apologies, explanations and compensations if they make a simple mistake. Keep in mind that the convention in many countries is that to save face the apportioning of blame is avoided where possible, even if it’s the bank’s fault.

 
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