24 Nov Should I open foreign bank account for higher interest rates?

Q. As you know, the interest rate on CDs and savings accounts is terrible. I have been seriously considering putting some money in an overseas account where the interest is much higher than it is here. I haven’t read anything that says it is illegal and I would pay income tax on the earnings. What are your thoughts on this?
— Looking for more

A. You’re correct that interest rates for savings accounts and CDs are pretty paltry.

It’s hard to see your money just sitting there, not doing much of anything.

Actions taken by the Federal Reserve to help deal with the pandemic has kept rates low, said Dawn Brown, a certified financial planner with Peapack Private Wealth Management in New Providence.

It’s also impacted other countries across the world, she said.

“As economies begin to recover, it is likely that rates will start to gradually increase in the U.S. and provide a better return,” she said.

Prior to opening an account overseas, you should ensure that you are aware of the laws in the U.S. and the laws in the other country, Brown said.

“In the U.S.A., regardless of where an account is held, your income is subject to U.S. taxes,” Brown said. “In addition to paying taxes, it is likely that a foreign financial account should be reported to the IRS on an annual basis.”

It’s also important to note that deposits in a U.S. bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account ownership category, she said. You should be sure to understand if a similar safeguard is provided by other governments for an account held in a foreign country in case the bank fails, she said.

“There may also be rules in another country governing foreign account holders that you need to be aware of prior to opening an account,” Brown said. “It would be wise to do your due diligence on the rules in the country you are considering prior to opening an account and consult a tax professional.”

“Rates here are certainly low but are likely to go up over time and move closer to the rate you are seeing overseas,” she said.

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This story was originally published on Nov. 24, 2021.

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