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.

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!

Although many would argue that if Fort Knox accumulates a mountain of gold, then that’s clearly the way to go but it rarely is.

Yes, you can find that gold will appreciate quite substantially from time to time, particuarly when things appear bleak in other financial areas. But, when things pick up again, you’re just left with a pretty lump of metal which doesn’t pay you any interest or dividends.

Shares are obviously risky so if you’re looking for something that’s safe, then you need to avoid them and anything that’s based on them too which means that bonds are out too. Even the banks aren’t really 100% safe. If they’re large enough, the government will usually feel obliged to step in and bail them out, but do you really want to assume that your bank qualifies as being “large enough”?

You might think that I’ve eliminated everything, but there is one totally safe way to hold your money and it’s so simple that most people overlook it. All you need to do is to put your money in the government’s bank.

In practice, few governments allow you to bank directly with their central bank but the central bank normally has a number of offshoots with which you can deposit money and which also have that 100% guarantee. For example, in the UK you can use National Savings (from instant access savings through to fixed term investments) and in America you can buy Treasury bills (a fixed term investment).

What you’ll usually find is that these investments pay a little less than their equivalent as put out by normal banks. For example, at the time of writing, you can get 4.5% from an instant access account for a high street account but only 3.45% from National Savings. That 1% difference is effectively the cost of the 100% guarantee for your money; many depositors with Northern Rock would have been more than happy to pay it.

One of the ironies of the explosion of the various money making schemes available on the Internet in recent years is that it’s come at a time when it’s become virtually impossible to get the ideal type of bank account for these activities namely an American one.

However, recently there’s been a slow but growing number of alternative banks starting to fill in the gaps that the 9/11 security crackdown forced normal American banks to create. Thus far these have been quite limited in capability but that’s starting to change.

For example, Gem writes about one upcoming innovation from Payoneer which is basically creating a virtual bank account linked to the prepaid debit card that they issue on behalf of a number of organisations. It’s currently in the “coming soon” category but will permit you to quote a real bank account number to the likes of paypal thereby making it possible to convert your virtual money into the real kind by way of their debit card.

I suspect that there’ll be more such innovations coming over the next year as already paypal themselves are rolling out a similar, albeit more limited, scheme in some countries.

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.

Oh, sorry, it didn’t collapsed. It just didn’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 before, 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.

Most of the time it’s fine to take a few cards and maybe a travellers cheque with you on holiday, but what do you do if you run out of money when you’re abroad or if your cards/cheques are stolen?

It’s safest to work on the assumption that your cards and/or cheques will be stolen and prepare for that. The way to do this is to keep a note of the card numbers, expiry dates and cancellation phone numbers for each card that you are taking with you. For the travellers cheques you need to note down the cheque numbers and the date & place that you bought them. Take one copy of the note of these details with you (separate from the cards, of course) and leave one behind with a friend or family member. It’s best to cut down on the number of cards too and go with the minimum which is three: one Visa, one Mastercard and one more for when the other two are stolen (keep the third one separate from the other two).

When they are stolen, you just go through the details and call to cancel the cards and cheques. The cancellation numbers are usually reverse charge numbers ie you won’t have to pay to call the banks. It’s useful to look up the number of the international operator and/or AT&T direct number for the countries in which you’ll be on vacation in advance.

In theory, cards can be replaced abroad within 24 hours but this depends on your card, your card company and the banking system in the country in which you’re on holiday. The best cards for replacement are gold/platinum ones but unfortunately they’re also the most attractive to thieves.

However, some countries just aren’t up to replacing cards quite so easily though a combination of language problems and primitive banking systems. Nobody who has stayed with us and had a card stolen in Prague has ever managed to get it replaced whilst they were there.

So what do you do if the card company can’t manage to replace the card? That’s when you need to look into how to get money to yourself from home and there are several ways of doing that which I’ll be covering next.