Dateline: Tbilisi, Georgia
A year ago, my team received an email from someone asking about bank fees. This person was paying higher bank fees than they were expecting and wanted some advice on how to reduce them.
Bank fees can be confusing both offshore and in your home country. This is especially true if you live in places like the United States, Australia, or Europe, where bank fees tend to increase continuously. But it’s when people travel offshore that high bank fees can become really confusing.
The person who wrote in had been paying 20 euros a month in bank fees. For someone from a country like the United States, this probably seems like a lot to pay just for having an account. What is this money going toward? Generally, it is to cover local regulations that make it difficult for the bank to turn a profit. To continue operating, the bank needs to look after its own bottom line, and so it passes those fees along to the customer.
It is not all bad news though.
There are some benefits to using banks that charge higher fees, just as there are downsides to banks that offer low-cost accounts.
Downsides of low fees
Banks with fewer or lower fees tend to offer fewer benefits and less robust customer service and have the potential to cause you more problems down the road. In countries like the United States, for example, a few issues can arise when using banks with the lowest fees. First, these accounts will typically not generate any interest. Your money will simply sit there, which is useful for the bank, but a missed opportunity for you.
You should also bear in mind that these banks are often not well capitalized and tend to not have great liquid assets. In addition, you’ll find that when you’re paying less in fees, service suffers. Contacting the bank becomes a difficult chore, if not outright impossible at times. As a general rule, trying to resolve any banking issues that come up will be frustrating, due to poor or inattentive service. I’ve personally found this to be the case with HSBC, a bank popular with people who have companies located in Hong Kong. Though there is no monthly fee and outgoing wire fees are relatively cheap, you pay for that savings with subpar services.
Benefits of higher fees
By the same token, paying higher bank fees can usually guarantee you some benefits.
Here I will use myself as an example: I pay a $40 fee per month for my bank account. This fee is constant; there is no running balance I can maintain that will waive this fee, though some banks offer such a feature. However, in return for my $40, I receive some notable benefits. First, I have a direct email to my account manager, which allows me greater access should a problem arise. This increased service also comes in handy when dealing with smaller issues. For instance, should I need to have my password reset for some reason, I am not required to call into the bank and go through endless prompts in order to get my issue fixed.
This level of service is well worth the fee I pay each month, as it benefits myself, my business, and my team, who are able to contact my bank to ask questions, sometimes without even needing my direct involvement.
Small banks, big rates
While deciding whether it’s worth paying more for better service is something you’ll have to determine for yourself, no one wants to pay more for inferior service. When traveling abroad, you need to be especially careful in your choice of bank.
One type of financial institution that will give you trouble is the bank that is not a true bank. These are particularly common in the Caribbean and the Coco Islands. While they appear to be banks, in essence, they are trust accounts for other banks located in other countries. Here, you will find very high rates for services. Since these “banks” are small, they are inefficient and lack the proper infrastructure for great service, which means you pay more for less.
And since they’re really extensions of other banks in other countries, these banks have little control over what they can do. I have seen many of these banks in the Caribbean unable to even accept U.S. dollars. It is here that you will find especially high fees; wire transfers can reach up to $80 to $100 dollars for each transaction.
Spend more, save more
You may not be used to spending upwards of $40 on monthly fees or having to pay for wire transfers. But if spent wisely, the benefits of paying those fees can outweigh the drawbacks, and you’ll generally find the quality of service is well worth it. Chances are, if you are traveling offshore, especially outside of home countries like Canada, the United States, Europe, or Australia, you are doing so because it will save you no small amount of money in the taxes that you pay.
If you are running a business abroad, it is again probably because the prices are lower outside of these countries, and so you will save a considerable amount of money on that front. Budgeting a little bit of extra money for your bank account is well worth the peace of mind.
Though you may have to pay $20 for a wire transfer, or a $40 monthly fee to maintain your account, it is a ultimately a small price to pay if you are receiving high-end service, if it reduces the amount of time that you need to spend managing your money, and if it allows you to pursue what is important to you. Your time is worth it. Your business is worth it.