A short guide to foreign currency accounts in the US
As the world becomes smaller and businesses more global, it is only natural for online sellers to find ways to facilitate payments for their foreign customers.
Furthermore, some people want to use non-banking services for transferring for reasons such as travelers who want to send money to their friends, family, relatives abroad.
Businesses and online service providers who cater to foreign clients increasingly feel the need for an approach that supports foreign/multiple currency accounts. For instance, when receiving a customer's payment from a foreign country, a foreign currency account lets them receive and send money without incurring additional money transfer fees.
Clients prefer to carry out global transactions in their currency. But at the same time, it is vital to record the payments/dealings with overseas clients with the precise details of exchange rates and currency.
Furthermore, you need to track foreign exchange gain or loss when you move money from bank accounts in one country to another country.
The right foreign currency account can help on all counts.
What are foreign currency accounts?
A foreign currency account lets you send and receive funds in a foreign currency, changing and improving the way you conduct international business.
For example, if you have a European client, they can send your payment in Euro, as long as you have a foreign currency account for it with your US bank.
Later on, you either exchange those funds into U.S. dollars or keep them in the transactional currency you've selected for your account until you are ready to change them. And based on your specific account type, you can continue to earn interest on any funds you leave in there.
International banks like HSBC and Citibank also allow you to withdraw and deposit money from your multi-currency/foreign currency accounts online or at a branch. But for that, your account must be for one of the most traded currencies – pounds, yen, and dollars, for example.
All in all, these accounts can be very convenient if you earn in a currency other than US dollars and want ready cash at hand while also giving your clients the ability to pay you in their home currency.
Furthermore, having a foreign currency account can be an excellent way to alleviate the risks associated with currency fluctuations, as well as reduce some of the costs involved in international transfers.
However, like everything else, these accounts also have some inherent risks.
Pros of opening a foreign currency account
You can give and receive money in various currencies and avoid exchanges between them. If you trade in exotic or minor foreign currencies, inquire about specialists that deal in international money transfers and accept unusual transactions.
Some banks let you switch among different currencies so you can leverage the power of reasonable exchange rates. This, in turn, helps you save a lot of money, especially if you manage large business transactions.
Depending on the nature/size of your business, some financial institutions may waive off additional charges such as maintenance on your foreign/multi-currency accounts.
Many multi-currency accounts help you earn interest in selected currencies. Typically, you are offered interest in tiers, with improved rates leading to more significant interests.
Suppose you are uncertain about your foreign currency payments' timing. In that case, most banks let you go into a short-term deficit on particular currencies even though you may be liable for the fees.
Cons of opening a foreign currency account
You can anticipate the special cash charges associated with overdraft and handling on some of your business transactions. Therefore, finding the financial institution that levies the lowest costs is imperative when deciding to open an account.
If your foreign currency accounts offer interest, the rate might not be as high compared to your average savings account. Foreign currency bank accounts are notorious for lower interest rates.
You may be required a daily minimum by your bank before they hit you with high costs. However, international banks such as HSBC, Wells Fargo, Citibank, Bank of America, and others don't require minimums.
The value of your money and currency fluctuates constantly. A sudden fall or rise has a significant impact on your total balance of the foreign currency accounts.
How to open a foreign currency bank account in the United States?
Suppose you have to make or receive payments overseas. In that case, a foreign currency bank account can help you stay on top of your business internationally or even support your family members, friends with a flexible account.
Here is how you can open foreign currency accounts in traditional banks and non-banking institutions to manage your finances which will save your money and time with more streamlined transactions.
Using traditional banks
Citibank offers foreign currency accounts only through its Global Banking Privileges that are Citigold International products. This is not a standard checking or savings account – in order to get access, you will need to maintain a relationship balance of $200,000 or pay $150 as a monthly fee.
Once you open your multi-currency account, you can spend and hold Euros, US dollars, and British pounds with your linked card.
HSBC (US) doesn't offer foreign currency accounts, but you can use their expat service to open an account for Euros, British pounds, and US Dollars. Furthermore, you can also access your savings accounts in 16 different currencies.
Essentially, expatriates who reside abroad and expat services are meant for financial offerings that help them work and manage their money. Moreover, these services allow you to connect with experienced professionals who help people make sound decisions regarding savings and investment and review their finances.
BoA doesn't offer multi-currency or foreign currency accounts at the moment. You can only hold funds in US dollars, but it is possible to buy multiple currencies via Bank of America whenever you travel.
Wells Fargo's multi-currency accounts are available only to their business customers. If you are a standard retail customer, you won't find foreign currency account options. So you'll have to open a corporate account which can then become a foreign currency account that lets you trade in Canadian dollars, Euros, or British Pounds.
Non-bank institutions
BOSS Revolution is a robust money transfer platform that lets you transact in more than 50 countries from the US. With an app in both the Apple and Android stores, BOSS Revolution offers various delivery options and a quick delivery time. BOSS Revolution money transfer services help you send funds to your friends, relatives, freelancers, etc., abroad seamlessly.
This is one of the most convenient non-bank institutions that help you send and receive money from various countries. Payoneer's services also offer you the ability to take out money through your debit card from an ATM branch. This is quite different from other non-bank financial institutions where the user must receive money through their bank account locally.
Remitly is a financial institution that has grown rapidly and specializes in online transactions. However, they aim to help people send smaller transfer amounts, remittances, etc., to countries specifically in Africa, Asia, and South America. The platform offers fast transfer of your money via its "Express" service, which is quick, but it comes with higher charges or "Economy" that is cheaper, but it takes time. Remitly has its exchange rates, services, and fees transparent with an easy-to-use site at every step of the money transferring process while ensuring precision.
InstaRem is yet another non-bank financial institution that provides you money transfer service with a seamless experience. The institution also offers the best exchange rates with the lowest fee structure. InstaRem is a well-worth option that has competitive exchange rates and transparent and reasonable fees.
What are the fees associated with a foreign currency account?
When opening a foreign currency account, you'll have to pay for maintenance, transactions, and other monthly payments that can quickly add up. Account owners usually have to pay for the following regularly:
- Withdrawal and deposit fees. Most of the banks offer you unlimited deposits or agree to an established number of withdrawals for free on a monthly basis.
- Service charges for each month. If you are unable to find an account that has no service fees, find the ones that waive off the payments associated with high balances. Also, make sure that the balance in your account meets the needs of your business.
- Transaction fees. Several international banks have global partnerships that minimize how much you will be charged for every transaction.
- Overdraft fees. Like usual bank accounts, you need to pay overdraft charges in case your account balance goes below zero.
- Cash-handling fees. Few banks also limit the number of deposits you make to your account within a particular period. If you go above the provided limit, you are charged a certain amount for processing your future deposits.
When you are making account comparisons, it is vital to know how many transactions you anticipate. Many financial institutions offer unlimited deposits for free if you conduct a more significant number of transactions every month.
What are corporate multi-currency accounts?
Corporate multi-currency accounts allow your organization to pay, receive, and hold in different foreign currencies. This way, you only need one account to manage your funds in several currencies while minimizing the international banking costs and limiting fees that you pay to exchange from one to another currency.
Furthermore, the corporate account-related details such as account number, beneficiary name, SWIFT code remain the same for any currency.
A multi-currency corporate account helps you save costs, efforts, and time when your business receives and makes payments in different currencies. This means if you have any cross-border dealings with your partners in multiple currencies, you can benefit from having a corporate account for multi-currency.
You can benefit from a multi-currency account when:
- Your business deals in international transactions; be it importing, exporting, or both
- You operate and manage an online store that sells goods/services in various currencies
- You work with suppliers, customers, freelancers overseas or recruit staff abroad
- You are a freelancer or an independent contractor who collaborates with clients on a regular basis across the globe
Reporting multi-currency bank accounts
Federal regulations are designed to protect the users' transactions and reduce the money laundering cases by instantly reporting it to the government in case a transaction involves more significant amounts of currency. These laws are applied equally to foreign currency and U.S. currency.
Government lows and requirements (Bank Secrecy Act)
Many US government laws aim to regulate financial institutions and banks, so they report all transactions worth more than a certain amount to the Internal Revenue Service. These transactions include foreign currency exchanges, withdrawals, deposits, and purchases.
Furthermore, financial institutions must also report if they believe someone is intentional "structuring" transactions to evade the specific threshold resulting from fraudulent activity.
Wrapping up
The bottom line is that foreign currency accounts make it easier for you to expand your home country's business operations. By establishing a multi-currency account in the United States, you are able to optimize your foreign cash flows and become more responsive to changing market conditions effectively.
Furthermore, you can consolidate your foreign payments and receivables in a simplified manner while ensuring precision. Services like Payoneer and BOSS Revolution make it easier and faster to send and receive international remittances, helping business owners, freelancers, as well as friends and relatives ensure the safety of their money when it is in transit.
Sources: all third party information obtained from applicable website as of May 15, 2021
This article is provided for general information purposes only and is not intended to address every aspect of the matters discussed herein. The information in this article is not intended as specific personal advice. The information in this article does not constitute legal, tax, regulatory or other professional advice from IDT Payment Services, Inc. and its affiliates (collectively, “IDT”), and should not be taken or used as such by any individual. IDT makes no representation, warranty or guaranty, whether express or implied, that the content in this article is current, accurate, or complete. You should obtain professional or other substantive advice before taking, or refraining from, any action on the basis of the information in this article.
