4 Reasons You'll Be Denied A Bank Account Offshore (And How To Overcome Them)
If you want to open a bank account in the United States, you walk into a branch of a bank and simply state that objective.
That is, you say you want to open an account.
Or, even easier, you do it online and save yourself the trip to the bank.
As long as you have a Social Security number, the process is typically hassle free for an individual. You’ll have to jump through a few hoops to open an account for a U.S. entity… but, still, it’s a straightforward process.
I can confirm this fact based on recent experience. I was able to open a new account for one of my U.S. corporations while in the States a few weeks ago. The only hiccup was that the banker had to confirm with her compliance department that they could open an account for an out-of-state corporation.
They could… and they did. It took a matter of minutes.
In the world of offshore banking, opening an account is more complicated.
Reason #1: Your Citizenship
The first variable that can trip you up is your country of citizenship.
Now that FATCA rules have been firmly established, you have a better than 50/50 chance, as an American, that an offshore bank will do business with you. That’s a nice improvement over a few years ago.
Reason #2: Your Residency Status
The next variable that can affect your ability to open an account with an offshore bank is your residency status.
Being an American not living in the United States seems to confound many offshore banks. At a minimum, it increases the chances that the bank won’t deal with you.
I found this out recently when trying to open a new offshore bank account to hold multiple currencies. The bank I approached will open an account for an American… but not for a resident of Panama.
The bank in question is Barclays International out of London, which has published a step-by-step guide to help you determine whether or not you’d be approved for an account. First, the questionnaire asks you to enter your citizenship… then you’re prompted to enter your country of residency.
That was as far as I got. When I filled in “Panama” as my country of residency, the system replied to say I would not be able to open an account.
To test a theory, I started over, indicating Panama as my country of citizenship (even though I don’t have a Panama passport). Nope. The system didn’t even proceed to question number two, to do with residency. Panama citizens aren’t welcome.
Intrigued and wondering which nationals are able to open accounts, I tried entering, in response to the citizenship question, random other countries, including France (nope) and China (yes).
I’m not sure what to conclude from my testing except that either the regulatory situation for U.K. banks is complicated or Barclays is picky about who they’ll deal with. The former is more likely.
One reason I tried Barclays International was because you can open an account remotely—that is, you do not have to go into a branch. As traveling to another country to open a bank account isn’t really an option right now, this is an important factor. Unfortunately, the list of banks that don’t require an in-person interview to open an account is short.
Reason #3: The Account Itself
The third variable that can be a stumbling block—beyond your nationality and your country of residence—is to do not with your situation but the account itself. Some banks won’t allow an American account-holder to do anything more than hold different currencies. Their investment services are closed to you because they aren’t registered with the SEC.
Some banks have registered with the SEC to be able to provide investment services to Americans, but, again, it’s a short list.
Reason #4: The Account Minimum
One last criterion to pay attention to when shopping for an offshore bank is account minimum. Barclays International’s minimum deposit is 25,000 pounds—a reasonable amount for most people. Some banks in the Caribbean have lower minimums.
However, most banks require higher minimum deposits—from US$250,000 to US$1 million for banks in Switzerland and other parts of Europe, as well as truly private banks elsewhere you won’t hear about without an introduction.
My search for a new bank continues. I’m not in any rush. My goal is to find a bank with better service (maybe a pipedream) than I’m getting from one of my European banks. The current travel restrictions are complicating things.
Meanwhile, I find that using a currency exchange service helps with my need to hold multiple currencies. These quasi-banking entities can have another advantage. The company I use, MoneyCorp, is a U.S. entity regulated in the States. It’s not an offshore account so it’s not reportable on the FBAR.
Currency exchange accounts aren’t meant for holding funds long term. You earn no interest, for example, but in a zero-interest world, that doesn’t mean much.
Meantime, these accounts offer great practical benefits, starting with the exchange rate, which is better than the one you’ll get using banks to move money from one currency to another. U.S. banks, for example, use the worst possible rate when exchanging U.S. dollars for euros.
European banks give slightly better rates in my experience if you send U.S. dollars and the receiving bank does the exchange.
But, again, you’ll come out better still with a currency exchange service.
When transferring tens or hundreds of thousands of dollars for a property purchase, a few pips adds up.
In addition, with a currency exchange account, you can decide when to execute the exchange. This can be important if you think the receiving currency is likely to weaken in the short term.
The most important take away from all of this is that, yes, banking offshore is more complicated than walking into a local branch and filling out a couple of forms.
That, though, is no reason not to have at least one offshore bank account.
If you don’t already, you need to add this fundamental level of diversification to your plan.
The good news is that, once your account is set up, it’s set up.
You’re good… until you want to change banks… like I’m trying to do right now.