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Banking for Expats in the United States Of America

Author: Gavin Adie
Submitted: September 2013

The banking industry in the US is divided based on the immigration status of the applicant. Due to the United States dollar being seen as a safe haven currency a significant proportion of the US banking sector is made up of deposits from non-residents, enabling both temporary visitors and long-term expatriates to establish accounts with relative ease.

Before considering where to open an account you must first establish whether you are deemed to be a resident or non-resident foreigner, termed an "alien" in US speak. Although banking services are not restricted for either category, different regulations apply to each, and as a result the process for establishing an account.

Resident aliens, treated as US citizens for tax purposes, meet the conditions under one of two tests. The substantial presence test applies if you have spent 31 days in the United States within this calendar year; and 183 days during the last three years, calculated by taking the days spent in the present calendar year, one-third of the days in the previous year, and one-sixth of the days in the preceding year. The other test - the green card test - applies to anyone who is a "Lawful Permanent Resident."

The US banking sector is populated by five big players, JP Morgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs, but there are many small banks including institutions that are local to different states. The banking industry is regulated at both state and federal level.

There are four basic categories of accounts that are offered in the US: basic checking accounts; interest-bearing checking accounts; and certificates of deposits. Each have substantial, defining characteristics but are all insured by the Federal Deposit Insurance Corporation (FDIC) up to USD250,000 per account.

Basic checking accounts offer account holders the flexibility to write checks; still prevalent in the United States unlike in Europe. These basic accounts offer a lower fee solution to opening an account but only allow depositors to undertake basic banking functions.

Interest-bearing checking accounts provide a middle road between a savings account, which is limited in terms of the number of transactions that may be carried out, and the basic checking account. An interest-bearing checking account, as the name suggests, provides both interest and the option to undertake a wide range of transactions, often without limits, as well as write checks. These multifaceted accounts often have higher fees however.

Savings accounts on the other hand often yield significant interest but only offer basic facilities. Some accounts have rules concerning the minimum balance that must be maintained, and do not allow checks to be written. These accounts are therefore limited in use other than as a rudimentary wealth management vehicle. There are strict limits in place on savings accounts preventing more than six transfers or withdrawals within a month period. Banks are compelled to intervene if these limits are exceed, either by placing the funds in another account that does not limit the number of transactions, disabling certain functions or closing the account.

Certificates of deposits are accounts providing a higher level of interest but also requiring that funds remain untouched for a certain "lock-in period," typically ranging from several months to six years. There can be high penalties for the withdrawal of funds during this lock-in period making the account unsuitable as a general purpose account.

Checks remain in common use in the US, unlike elsewhere, particularly for payments to self-employed persons providing temporary work, and payments to employees, favored due to the merchant fees that can apply to other forms of payment. Fees may be charged for checks cashed at a banking institution other than your own. Likewise, banks are not obligated to cash checks for non-customers, and unlike elsewhere most banks use fingerprinting as a means of tackling fraud. That being said, payment by credit and debit card is commonplace, and the number of retail businesses that accept checks is in decline.

In 2010, federal regulations took effect that provide certain protections for bank customers against overdraft fees. When establishing an account, depositors are required to opt-in if they desire to have an overdraft facility. According to the FDIC, overdraft fees can average in at USD30. However, according to research from the Consumer Financial Protection Bureau, bank customers who sign up for the overdraft protection facility often experience higher annual fees on their account.

Banks are permitted under federal law to charge non-interest charges and fees, including deposit account services charges, but these fees must be disclosed when an account is established. Expatriates who choose not to establish a US bank account may be charged ATM withdrawal fees although not all banks charge these fees. Some retailers offer "cash back" schemes which may enable you to avoid these fees, which generally range between USD2-3 per transaction.

Often non-US citizens are required to undergo credit checks when establishing an account to reduce the risk of fees and overdrafts going unpaid.

Although policies vary between states, the Patriot Act introduced federal rules that required banks to establish a Customer Identification Program. The requirements you are subject to will depend on your immigration status, as discussed above. At a minimum, the bank must request:

  • Proof of your name and date of birth;
  • Proof of address, such as a utility bill; and,
  • A US-issued identification number.

NRAs are generally required to furnish two forms of identification; a primary and a secondary form. A driver's license or passport bearing your image is accepted as a primary form, while a secondary form may include a utility bill or debit or credit card documentation.

NRAs without a social security number or tax identification number (TIN) will either be required to apply to the IRS for a TIN or will be required to complete form W-8. Resident aliens on the other hand must provide a Social Security number or a employer identification number.

Banks generally will close accounts that remain dormant for three to five years, transferring the funds to the state, but not before attempting to make contact with the account holder to warn of the account's impending closure.

 

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