In years gone by banks provided services to their customers as their primary goal. Over the years that focus seems to have changed and today it is all about their profit and share price. Customers have taken a back seat and can often be heard voicing their frustrations about inferior service and escalating costs.
Businessman with bamboo balancing on Indian paper currency over colored background
Even though it seems obvious, we sometimes neglect to look at our own banking arrangements and can end up paying more than we should for out-of-date and inefficient services.
These days we take bank accounts for granted. We use them as a convenient facility to keep our cash safe and manage regular transactions such as receiving a salary or other income, paying bills and arranging for regular payments to be debited automatically lest we forget them. Banks make cash readily available for us to withdraw from ATMs to cover our everyday expenses.
As an expat you probably have more than one bank account, in different locations too. If you live in Thailand you likely have an account here, although there are restrictions on opening accounts for some non-Thai residents. If you have a work permit or a retirement visa it is easy to open an account with any of the major banks in Thailand. Some other expats would find having an account here convenient and useful but are often refused by the bank they approach. I am told that it is legal for these expats to have accounts but the decision rests with the local branch manager.
Having a local account can be very useful as you can arrange for your salary to be paid into a Thai account and organise bills to be paid while you are living here.
Expats rarely cut ties with their home country completely, so they likely have an account there too. These accounts can receive local income without having to bear frequent heavy international bank charges, or have cash converted to Thai baht when you do not wish to do so.
The same applies to offshore locations where we often create some sort of financial connection. Perhaps we own property in another country and prefer to collect rent locally, giving us a common currency to meet associated bills. We may also have investments in different currencies, keeping them offshore to preserve their value in tax havens with an added choice of currencies. This allows us to feed any offshore investment vehicles conveniently.
So, having bank accounts in various locations and in a number of currencies is often considered not only essential but normal. But have you considered the costs you may be incurring in maintaining your accounts? These can appear to be small but turn out to be substantial when you add them all up. There may also be risks these days.
For example, a number of expats held accounts with Icelandic banks in 2008, in the Isle of Man and Jersey, because they paid higher interest than their competitors. These banks collapsed during the financial crisis, leaving depositors with significant losses to bear.
There was also the famous Lehman Brothers collapse which drove home the point that this can happen to any bank. There is no such thing as a risk-free bank or an institution being too big to fail.
Risk issues aside, there are many other good reasons why you should review your banking arrangements regularly to see whether they are still suited to the life you’re living. Let’s look at an example.
Steve is a British expat living in Thailand and has a number of bank accounts in various locations. He owns property in Australia, the UK and Singapore and maintains accounts there to receive rents and pay his associated local bills. He also banks in the Isle of Man because he has investments there and keeps reserves in US dollars, British pounds and euros. He is aware that if he held accounts in the US, the UK and Europe, the banks in those countries would be unable to easily transfer money around the world for him via internet banking instantly. Steve also has an account with a local bank in the UK, into which rents collected on the property he owns are deposited.
Steve works in Thailand and has accounts with two banks here. He uses one for savings and the other to receive his salary and pay local bills. He used to work in Indonesia and had an account there which he forgot to close, leaving behind a relatively small balance.
When he opened his accounts Steve found that the banks offered debit cards, which are also ATM cards for cash withdrawals. This idea appealed to him so he had cards issued for all the accounts except the dollar and euro accounts in the Isle of Man.
Steve was shocked when we recently reviewed his arrangements. We looked at the necessity of each account and the actual costs he has incurred in the last couple of years.
Each time he makes a transaction in the Singapore, Australia and Isle of Man accounts he is charged the equivalent of about $45. He had forgotten this and has been moving funds around unnecessarily. Not only that, but when he needs cash he just opens his wallet and chooses the first ATM card in view. This racks up a great deal of costs, not only for the transaction but also because he uses random currencies.
For example, recently in Australia he had to withdraw from his Sterling account because he had forgotten his Australian ATM card. This cost him heavily in transaction fees and an unfavourable foreign-exchange rate.
We added up the costs of his banking over a year and Steve was shocked when he realised that the costs totalled some US$5,200 (170,000 baht). His account in Indonesia was empty as the balance had fallen below the minimum required and a monthly service charge had slowly eaten the balance away.
Similarly, in the Isle of Man service charges had been applied to accounts where balances were below specific limits, while accounts in other currencies with the same bank were much higher. The interest Steve had accrued was less than $350 to offset his charges. By using his investment vehicles more wisely with available cash, he could have covered these costs entirely and perhaps made more.
Steve has now closed the accounts he doesn’t need. He has organised his affairs so he knows precisely which cards to use and how to manage his cash with each bank to keep charges to a minimum.
In conducting his review he has also evaluated the strength of the banks with which he has accounts and resolved to change some of them. He was not an account holder with Lehman Brothers or any of the Icelandic banks and has no desire to experience what happened when they collapsed.
Do you regularly review your banking arrangements? Do you have accounts that are dormant but cost you fees and charges? Are you managing your cash in such a way that you are getting the best value for money from your accounts? If not, perhaps it is time you assessed your situation to ensure you are doing the right thing for yourself. n
Andrew Wood has been an expat in Asia for 35 years and is executive director with PFS International. He has been writing Net Worth articles for seven years and has made a significant contribution to the PFS library of financial service articles dating back over 10 years. These articles, which cover the complete A-Z of financial planning, are available to readers on request. Questions to the author can be directed to PFS International on 02-653-1971 or emailed to enquiriesthailand@fsplatinum.com.