Why You Need A Second Bank Account Overseas
My standing rules for banking overseas include having two bank accounts for each operating entity that has income. Most real estate holding companies that are used to hold property that doesn’t have income don’t need a bank account because there’s no money to hold or receive. Corollary to that rule is having two offshore bank accounts in your personal name.
Why You Should Have Two Offshore Bank Accounts In Your Personal Name
The reason for having two bank accounts that has proven important over the years is that banks can and do close accounts without much notice for no apparent reason. Typically, this happens more with entities than for personal accounts, but it can happen with any account… even in the United States.
One company I know that does business in Nicaragua had their corporate accounts in the United States closed at a bank they had worked with for decades. They received the “30-day notice” to move their funds or the bank would simply issue a check for the balances. The bank at least had the courtesy to tell them why they were closing the account when they asked them. Many times, banks won’t tell you the reason they are closing your account.
The priority should be for your entities to have two bank accounts. The main reason for that is simple. You can’t easily cash a check in the name of an entity. And if the amount is large, you don’t really want to have all that cash anyway.
You also cannot open a new account for an entity quickly in most cases, which means 30 days usually isn’t enough to open an account to transfer the funds from the account being closed.
Carrying the costs of two accounts for a small business or trust can seem expensive until you find yourself in the situation of needing that second account. The lost time and hassle factor can be avoided by being proactive and having those two accounts.
On the personal side, having a second account overseas in your personal name can be less critical. You likely will still have your account back home where you could transfer the funds. The issue that arises is currency. A personal account in euros that’s closed with no other euro account to transfer to would mean you have to convert those euros to the currency of your home account.
You Should Hold Two Offshore Bank Accounts That Can Hold The Same Currency
That gets to the next corollary to the banking rules—have two accounts that can hold the same currency.
A multi-currency account can help mitigate the need to have excessive accounts if you’re doing business, have real estate, or are living in countries with different currencies. The complication here becomes most multi-currency accounts would be available at private banks where high minimum account balances are required.
One way around that can be an account at a currency exchange company like Moneycorp. These FX accounts allow you to hold and exchange multiple currencies while also typically getting the best exchange rate you’ll find and saving transfer fees because they have local accounts in the home country of whichever currency you need.
Of course, having that second account only helps if you get a notice from your bank that they are closing your account. This month one of my accounts in Europe was closed with no notice. I only found out about the closure when I went online to check the account and make a payment from it for something I bought from an individual who didn’t take credit cards.
The bank hasn’t responded to my attempts to speak with them so far.
So where’s my money? I’m guessing it’s in the mail in the form of a check.
Fortunately, I didn’t keep much money in that account to begin with, so once I track down the check, cashing it won’t be a big deal… as long as I get the check and cash it before the check is no longer valid. I have a year in this case.
Not keeping a lot of money in any given account overseas is one other banking rule in my rule book. At any given time, most of my accounts overseas have enough to cover a month’s worth of local expenses or in places where the expenses aren’t that much monthly for maintaining the property there, maybe a year’s worth of expenses… A few thousand dollars or enough to keep from paying any bank fees if possible.
Where to keep the bulk of your cash? Again, we’re back to private banks where the minimum account balances typically start at US$250,000 or the local equivalent. These would generally be investment accounts where you’d also be investing in locally available stocks or funds. With an investment account at a private bank, you’re less likely to have your account closed because you have a personal relationship with an account manager who knows you, is in regular contact with you, and will have a conversation with you if the bank needs to update their KYC (Know Your Client) documentation.
I’ve had many accounts closed over the years which is how my rules came about and have evolved. It’s no fun which is why my last rule is to keep open any offshore account that you have unless it becomes too expensive or burdensome to maintain. You never know when you might need that account… and you don’t know if you’d be able to reopen an account at the same bank.
I’m off now to look for a new bank to replace the one that closed my account.