How can a U.S. citizen open a bank account in Europe?
Since interest rates are higher in the Eurozone than in the U.S., I’m exploring the possibility of opening a Eurozone bank account. For example, ING Direct is offering 3.5% on a 12-month CD, whereas the same product in the U.S. pays a laughable 0.75%.
What do I need to consider when opening an account in the Eurozone? Obviously, I’m incurring a foreign currency risk as my deposit will be in EUR, not USD, but this is fine with me as I consider a hedge against a declining dollar an added bonus.
Is there an equivalent of FDIC insurance?
EDIT
I’m curious as to the rules and procedures that apply to opening an account as a resident or as a non-resident (I’m assuming the latter is more difficult).
Each country will have different rules. I can only speak about the Netherlands. There, there are two options as a resident to open an account. You needed a BSN (Dutch ID number) or a strong reference from an international company sponsoring your residence there at a bank branch that dealt frequently with foreign customers. It was not possible to open an account as a nonresident although high wealth customers probably get special treatment.
Recent US reporting requirements have made European banks very unwilling to deal with US people. I have received a letter from my Dutch bank saying they will continue my current products but not offer me anything new. If I call the bank, the normal staff cannot see anything about my accounts. I need to call a special international department even for mundane questions.
Tackling your last point, all banks in the EU should be covered to around €100,000. The exact figure varies slightly between countries, and generally only private deposits are covered.
In the UK it’s the FSCS that covers private deposits, to a value of £85,000, see this for more information on what’s covered. In France (for a euro denominated example), there’s coverage up to €100,000 provided by Fonds de Garantie des Dépôts, see this (in French) for full details.
There’s a fairly good Wikipedia Article that covers all this too.
I’ll let someone else chime in on the mechanics of opening something covered by the schemes though!
If you don’t want to hassle with opening an account (and don’t mind going without insurance) there are currency ETF’s that basically invest in euro money market accounts.
Here’s an example of one
Not sure if the return would be as much as you’d get if you opened your own account and went for longer term instruments like a 12 month CD (I think the Euro MM rate is around 1.1% compared to 0.1% for the US). But since it trades like a stock you can do it without having to establish an account with an overseas bank.
Be mindful of your reporting requirements. Besides checking the box on Schedule B of your 1040 that you have a foreign bank account, you also need to file a TD F 90-22.1 FBAR report for any year that the total of all foreign bank accounts reaches a value of $10,000 at any time during the year. This is filed separately from your 1040 by June 30 of the following year.
Penalties for violating this reporting requirement are draconian, in some cases exceeding the amount of money in the foreign bank account. This penalty has been levied on people who have been reporting and paying tax on the interest on their foreign bank accounts, and merely neglected this separate report filing.
Article on the “shoot the jaywalker” punitive enforcement policy.
http://www.rothcpa.com/archives/006866.php
Mariette
IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.
EDITED TO ADD