Foreign Perspectives

Archive for the ‘Banking’ Category

One of the most surprising thing about the Internet is just how much people are prepared to pay for information from one site that is available free on another site.

This is probably best illustrated by the vast number of websites which sell you the information that you need to open an account in America when you don’t live there. I say “America” simply because that’s the most popular but there are many other sites offering to open accounts in Switzerland (the second most popular) and various countries around the world.

Now, I’ll grant you that it’s more difficult to come by the information for Switzerland unless you know where to look but I’d be wanting to do a whole lot of looking before I forked out the typical $250 to $1000 that some websites charge for this information. I’ll be covering this (free!) very shortly on the expat banking section of Whole Earth so, unless you need your Swiss account in the next couple of weeks, it’s probably best to hold on to your $250 ’til I get back from my research trip next week.

What about America though? Would you pay $100 or more for the information? Many people appear to yet it’s freely available on the expat banking section of Whole Earth already although, to be fair, many others seem to have been getting it there for free for quite a while if the site stats are anything to go by.

The thing that gets me is that, in most cases, the information isn’t difficult to find. What’s worse though, particularly for Switzerland, is that a number of the charging websites are providing information that simply won’t work as they typically recommend opening an account with SwissPost which stopped opening accounts for non-residents a few years ago.

I’m quite tempted to start selling the information on ebay myself!

Of the hundreds of people who have stayed with us over the course of this year, only two or three have paid using the Nationwide credit card which is crazy as they’re the only place that doesn’t charge to use your cards overseas.

Perhaps more crazy though is that of the dozen or so couples who live in Spain and have used us as a pitstop on their way to/from the UK, only one used a Nationwide card as they’re spending quite a considerable chunk of their income on bank charges. Quite how much is staggering. For example, a friend who lives in Brussels let drop once that he just used his Halifax card in the same way that he had done when living in the UK ie he would lift £20 or £30 each time he needed some money and likewise when he was paying for the groceries or whatever.

Most people read the bit in the credit/debit card charging information that says “currency exchange 2.75%” and figure that he wouldn’t have run up much of a bill. However, there is a transaction charge on all overseas use of the card of, at that time, £2 (and I gather it’s now £3) PLUS the 2.75% foreign exchange charge. So, that £20 cost him £2.55 ie 12.75% and, yes, he was paying around 12% of his entire income each month on bank charges!!

Clearly it’s quite different if you’re living abroad vs going on holiday but that minimum charge soon mounts up if you lift small amounts of cash. Whilst it’s much better to use the Nationwide card and pay nothing, if you are using a fee charging card you should lift a minimum of £100 or so each time and thereby reduce your costs to 4.25% to 4.75% depending on your bank and, whenever possible, use your credit card for purchases rather than making cash withdrawals.

See our guide at holiday money for more information.

Although I’ve been plugging away with a series on living in France and you’d think that it would be something French that would be the most popular post on the blog, in fact it’s a post that is solidly in the expat finance field that is by far the most popular.

It’s, of course, our article on opening a bank account in America as a non-resident. Why? Well, for those that are running a small business on the Internet, the preferred way of getting paid is via PayPal which is brilliant for a small business as you get to accept credit card payments with no hassle at all. However, obviously you need to get the money out of PayPal and into a real bank account at some point and that’s where the problems start.

PayPal is basically an American payment scheme and only lets you transfer money out to a fairly limited number of countries. Crucially, that range of countries excludes quite a lot of Asia who are, of course, one of the most active business communities on the Internet.

If PayPal don’t support bank accounts in your country they give you only one other option: transfer money to an American bank account and so opening a bank account in America has become very popular. Unfortunately, the tightening up of security checks after 9/11 means that it’s quite difficult to open an account there or at least the options have closed up somewhat.

What’s happened then is that there has been a massive growth in websites offering to sell you the information for anything from $5 to $1000. Yes, up to one thousand dollars! Since I don’t charge anything for somewhat better information, the post in question has steadily moved up the rankings in google and indeed the corresponding entry in the expat resources section of the Whole Earth Guide has soared right up to the top of google too.

In fact the post has become so popular that I’ll be rolling out a similar guide for other countries which have been requested (Switzerland is next in line, the Channel Islands after that).

I’ve been thinking about the traffic that’s been arriving on this site over the last month or so and it would appear that the people most active in the “blog aggregators” are concentrated in the broad area of financial services for want of a better name for it.

To be fair, that sample of stats suffers from a bias in that I’m obviously only seeing the aggregation services that are picking up various articles on my blogs. However, the majority of my posts most definitely haven’t been in that financial services area yet the incoming links from the aggregators are disproportionately hitting topics in those particular areas.

For sure, there are aggregators out there looking at the travel end of things and whenever I write something about Hawaii and cruises in particular, then I can expect those articles to be picked up.

Anyway, that has me wondering if it would be worthwhile to kick off a blog aimed very specifically at that financial services area? For that matter, I’m also wondering if there’s money to be made with a blog aggregator: if nothing else, having other people doing all the work and having me banking the advertising income has a certain appeal.

The liquidity ratio of a bank is something that doesn’t matter to most people but it’s something that has become rather important following the collapse of the Northern Rock this week.

Oh, sorry, it hasn’t collapsed. It just doesn’t have any money of its own to give out to its customers.

What the liquidity ratio is is the percentage of the assets of the bank that are held in cash ie the amount that they can actually pay out. For the UK, the average liquidity ratio is just 3%. That might seem pretty low but in reality it’s more than enough as there’s obviously a constant flow of deposits and withdrawals.

However, when the flow is all outwards as in the case of the Northern Rock, that 3% isn’t really enough and that’s when they need to pay a visit to the Bank of England to ask for a few quid to keep them afloat.

As we said last week, the Northern Rock is finished. In reality that probably doesn’t matter as it’ll be taken over by one of the banks that were very keen to buy it just a year or two back. Let’s not forget that that they were very highly thought of not so long ago as an excellently run mortgage bank which just goes to show that having an excellent reputation doesn’t mean that a bank is “safe” (the Equitable Life was also very well run, of course).

This all begs the question as to whether the Bank of England should support the Northern Rock. After all, it didn’t support BCCI in 1991. What’s different is that the Northern Rock is a UK owned institution and the BoE want to maintain the image of the UK banking system being a safe place to bank. Something to bear in mind when looking for somewhere to deposit your money as several of the banks paying the top savings rates aren’t UK owned.