Day 22: The Financial Logistics

Dear 40 Days To Your New Life In Europe Student,

Today we’re going to walk you through what you need to know and what you need to do to be sure that you can manage your administrative and financial lives virtually. This way, you won’t have to worry about not being able to access an account, to get cash, to move money, or to pay a bill. You want these critical functions to be hassle-free… not a distraction in your new life overseas.

How To Be Sure You Can Access Your Bank Accounts (And, Therefore, Your Money) Online From Anywhere In The World

Let’s begin with your bank and investment accounts… These are perhaps the most critical pieces of this puzzle and the most important things to get set up correctly before you make your move overseas. That’s a first key to success with this agenda—to address these issues before you leave your home country. It can be much tougher to accomplish what you need to accomplish from another country.

You probably already have internet banking set up to check your account balances and pay your local bills online. If you don’t, that’s the first step. Go to your bank’s website and follow the instructions.

Specifically, you want to be able to move money (from one account to another or from one country to another, via wire transfer, for example) and to pay bills remotely and electronically. These are the critical criteria, and if your current bank doesn’t offer these services digitally, find a new bank that does. You can’t put yourself in a position of being required to show up at your local branch to authorize a transaction or to transfer funds from one account to another. How are you going to stop in at your bank in Des Moines to approve an account transfer if you’re living in Barcelona?

Additionally, you don’t want to rely on a single bank. We recommend that you divide accounts between at least two banks that offer complete and unrestricted online access.

A friend who has spent a year relocating his life and his business from California to Panama City had an experience that illustrates the importance of this strategy. You never want all your eggs in one basket. This fundamental rule applies to every aspect, big and small, of your financial life. In this context, the point is that you don’t want all your available cash in one bank.

Our friend worked hard and carefully to organize his new life in Panama in every regard… but he neglected to diversify his available cash between two banks. For some reason that he still doesn’t understand, his bank reset the password for his online access. Not a big deal to the bank. They mailed the new password to him at his U.S. address.

Really big deal for him, as he had no intention of being at that U.S. address anytime soon. Meantime, he couldn’t access his account online. He couldn’t make bill payments. He couldn’t wire funds where they needed to go.

He contacted his bank and asked if he could send wire instructions by fax, as he had urgent obligations to meet. No, the bank said. They don’t accept wire instruction by fax. (Most banks don’t; more on this in a minute.)

He was able finally to sort things out without flying back to the United States (he changed his password again to something that he chose over the phone), but it wasn’t easy and it took several days.

Access to your cash is key. With only one bank account and ATM card, you run the risk of being unable to withdraw cash when you need it.

Our friend’s story is extraordinary. However, there are more common concerns. What if, for example, you find yourself in a place where the only available ATMs don’t use the same network as your bankcard? This was fairly common when ATM machines first came out. It’s less of a concern today, but, still, depending where you travel, can be an issue.

Today, most ATMs and most ATM cards use at least two or three networks. One of our debit cards uses Interlink, Plus, and Star, meaning we’re able to use it most anywhere in the world. Cirrus is the other major global network, and we have another debit card that works on the Cirrus system. Still, we’ve been places where we’ve had to try several ATM machines before finding one with a network that worked with one of our cards.

The point is that diversifying accounts between two banks does you less good if both banks’ ATM cards access only the same systems. You want as many options as possible.

Here’s another common reason for having debit (ATM) and credit cards with more than one bank: When you relocate and begin spending time in new parts of the world, you’re going to begin using your cards in new places. You’re going to break out of your existing spending patterns.

And this is going to raise red flags with your bank. Sooner or later (probably sooner), your cards are going to be shut off. You’ll hand one to the clerk at the grocery store or the waiter in the restaurant only to be told, after they’ve tried to swipe it, that it’s been denied.

The reason it’s been denied is what the banks now refer to as “unusual activity.” But this likely won’t be the reason that appears on the credit card machine for the clerk or the waiter. The machine will say, “Denied” or “Declined.” And you’ll be left to figure out how to pay for your bread and milk or how to cover your dinner bill.

Unless you have another card to offer.

This issue has been mitigated greatly by the advent of mobile data and banking apps, allowing you to approve transactions and reestablish function to a denied card in real time. As long as you happen to have data or Wi-Fi access at the time the purchase is denied, you can use your email or banking app to approve the transaction and get your card turned back on.

Banks will tell you that they’re monitoring your debit and credit card activity for your protection. We have had, over the years, hundreds of conversations with different banks, trying to explain our situation. “We’re never going to fit any of your spending patterns,” we tell them. “We live overseas, and we travel constantly. Please make a note in your system.”

Which they assure us they do. Still… cards get shut off.

Another reason to have more than one debit and more than one credit card with different banks is because cards expire. What if your new card doesn’t catch up with you before your old one expires? You’ll create a system for receiving your mail from back home… but it won’t be foolproof. Nothing is. And, again, you don’t want to be caught in a situation where you have no valid debit card, for example… and therefore can’t take cash out of an ATM.

Here’s one more reason to have more than one card with one bank: What if your card is lost, stolen, or cloned? It happens. A friend had his Bank of America debit card cloned… not in Panama, where he’s living, but in New York, where he was visiting. He had the card shut off as soon as he realized what had happened. But it was his only one. We lent him cash to carry him through until a new card arrived.

The downside to ATM cards are ATM fees. In the United States, you’re charged a fee every time you use an ATM that isn’t a machine of your bank. In addition, most banks charge an ATM fee if you use your card overseas. Plus you’ll likely have to pay a fee to the machine owner, as well.

The best case is a bank (or institution, such as Schwab) that doesn’t charge a fee when you use someone else’s machine and that (again, this is best case) even credits you when you are charged a fee. Schwab qualifies and, for this reason among others, has become our preferred financial institution. Schwab automatically refunds any ATM fee you are charged when you don’t use one of its bank machines (PLC Bank).

Another bank that credits ATM fees is Everbank, an online bank with its only branches in Florida.

The second critical banking issue when living overseas (in addition to accessing your own money) is paying bills. Again, you want to be able to do this online from anywhere in the world.

You need the ability to pay bills online first and foremost so that you can keep current with your credit cards. In addition, though, you also want to be able to write and issue checks online—so that you can send your grandchild a check for his birthday, for example.

The make-or-break service that you’re shopping for when choosing which banks to do business with in your new life overseas is the ability to transfer funds online or via fax. You need to be able to transfer funds from one bank account to another within your “back home” country and, as well, from your “back home” account(s) to your new account(s) in your new home country (or wherever).  Especially challenging, as we’ve mentioned, is wiring money across international borders. Many banks still require you to show up in their offices to present the wire instructions. Schwab accepts wire instructions via fax (another reason this group has become our preferred financial institution). Another bank we work with takes wire instructions over the phone (using a series of passwords).

How To Manage Your Investment Portfolios From Anywhere In The World

You’ll also need to make a plan for setting up the investment accounts you’ll need to manage your portfolios in your new home overseas…

Keeping your liquid cash accessible is important, but being able to manage your investments is just as important.

If you manage your own investment portfolios and trade regularly (certainly, if you trade daily), this should be at the very top of your list of things you will not compromise on in making your move. Specifically, you should not consider relocating to a place where the internet access is not state-of-the-art and international-standard reliable. You probably shouldn’t, for example, plan to move to a remote mountain village in Italy. You’ll go mad struggling to get your trade orders to go through.

That said, with regards to your investment accounts, you have three options. You can keep them all in your home country; you can move them to an international bank or brokerage firm; or you can move some of them overseas and keep others “back home.”

Regardless where and how you decide to organize your investment accounts, the important thing, as with your personal accounts, is that you can access those accounts and the funds they contain. As with your personal accounts (checking and savings), you want to be sure that you have both online access as well as the ability to fax or call in wire and trading instructions.

Again, Schwab has become our financial institution of choice, not only for personal accounts but also, and perhaps primarily, for investment accounts, as you can tie them to your banking accounts and your ATM card. Schwab also offers excellent online services and the ability to fax in wire instructions. The downside is that they offer only U.S. investment options.

Whether you move your investment assets offshore or not depends largely on whether or not you are comfortable diversifying your investment portfolios outside your home country. Offshore banks offer more investment options, including options that aren’t available through U.S. investment banks. And we’re big believers in the fundamental wisdom of diversification in all regards (market, currency, asset type, etc.).

Whether you move your accounts and your assets beyond your home country also depends on how much you have to invest. The minimum account balance for many offshore banks is too high for some retirees. For example, Swiss banks, probably the most famous offshore banks, generally have multi-million-dollar account minimums. Other recognized offshore investment jurisdictions, including Liechtenstein, Jersey, and the Isle of Man, for example, have lower but still high account minimums (of, say, more than US$1 million).

That said, you can find offshore banks with account minimums of US$250,000 and less. Following are three we recommend, all with minimum account balances of less than US$250,000 (and as low as 25,000 British pounds):

• VallBanc
• Butterfield Bank
• Barclays Bank U.K.

If you’re an American, you have a secondary issue to take into consideration, as, in the current climate, the reality is that many offshore banks don’t want U.S. account-holders… and simply won’t allow you to open an account.

If you’re a self-trader who uses discount houses like Ameritrade or e-Trade for your brokerage activities, then you’ll find the fees of an offshore investment bank to be high. You’ll want to keep your U.S. brokerage account if you plan to continue day-trading from your new location. Offshore banks generally make more sense for longer-term investments.

The most important thing is to be sure that you have the ability to move funds easily among your operating accounts (the checking and savings accounts you use for day-to-day living expenses) and your investment accounts, including your regular investment accounts and retirement investment accounts such as an IRA. You’ll accomplish this by using banks that offer both online access and the ability to initiate transfers online, as well as the ability to initiate transfers by fax and over the phone.

Again, the thing you don’t want is to have to go in person to some bank or financial institution’s office to initiate a wire transfer. We had this problem with one U.S. investment brokerage firm we used whose agent had assured us that we could make wire requests via fax. However, he failed to mention that that was only for domestic wires. Foreign wires could be initiated only with an office visit. Considering we were already living overseas, that was impossible. We switched immediately to another brokerage company.

How To Organize Your Credit Card Accounts In Advance Of Your Move… And Why You Might Want A PayPal Account, As Well

Two other types of accounts you need to consider before making your move overseas are your credit card accounts and PayPal.

You probably already have at least one credit card, but, if you don’t have at least two, you’ll want to get another card (or two) before you move overseas.

As we explained above, living and moving around overseas, your debit and credit cards will likely get cut off from time to time or there will be a lapse in between a card expiring and you getting the new one.

It’s rare these days to find a business that doesn’t accept both Visa and MasterCard, but it’s not uncommon at all for businesses overseas not to accept American Express. Maybe you don’t want to leave home without your American Express (or so the AmEx ads would have you believe)… but you don’t want an American Express to be the only credit card in your wallet either, certainly not once you leave U.S. shores behind. Ideally you also want at least one Visa and one MasterCard in your stable of credit cards.

Typically, local banks and credit unions offer the best credit card deals and rates. You likely receive solicitations from banks and credit unions in your area in the mail. Start paying attention.

You can also go here to find mostly national bank and credit card companies you might want to contact regarding an application.

We are not going to try to educate you on credit card interest rates or fees in general. However, we do want to point out one credit card fee that you may not be aware of but that you’ll become very familiar with when you make your move overseas: the foreign transaction fee. Credit card companies have begun charging this every time a card is used overseas. It’s explained as a fee to cover the currency exchange, but U.S. credit card companies impose this fee even for transactions in countries that use the U.S. dollar… And they charge it even if you accept the charge at the point of sale in U.S. dollars rather than in the local currency (many places in Europe offer this option). You’re likely to get a better exchange rate from your credit card company than from the merchant’s bank, and you’re going to be charged the foreign transaction fee anyway, so, when given the choice, opt for the charge to be processed in the local currency.

The foreign transaction fee is typically 3%. American Express charges 2.7% on their Green and Gold cards. They don’t charge the fee on their Platinum cards. Capital One is the only credit card issuer we’re aware of that doesn’t charge a foreign transaction fee at all, though there are a variety of travel rewards cards that offer this perk (Bank of America offers one; many airlines offer mileage/frequent flyer program cards that also fit the bill). A few other cards have eliminated the fee on their preferred member cards. This site has a list of cards that don’t charge the fee.

Take a look here at an article that provides more information on these fees and that includes a chart of the fees charged by different cards issuers.

The point is that, depending on which credit cards and how many are in your wallet right now, you may want to rework your credit card portfolio before your big move.

Additionally, you want to make sure you have online access to all of your credit cards so you can check transactions, balances, and payment due dates easily from anywhere. You can pay your credit card bills online using the bill-pay service attached to your bank account, but most credit card sites also offer a reverse system whereby you can initiate a payment from the credit card site. We prefer to do all payments from the bank account site to keep everything in one place and easier to reference.

However, the online access to your credit cards is important to allow you to monitor transactions. We check all of our credit card accounts online at least once a week. If you see a charge that isn’t yours, you can contact the credit card company right away to raise a red flag.

In addition to getting your credit card infrastructure in order, consider setting up a PayPal account if you don’t already have one. Many people use PayPal to order things online (on Ebay, for example), but we’ve found that PayPal can also be a handy and efficient option for making other kinds of payments, a great alternative to writing a check or using a credit card. If you have a friend also living overseas, for example, and you need to send him money or maybe he needs to send you money, if he has PayPal as well, you can simply transfer funds from your account to his (or vice versa). We’ve set up this system with a French PayPal account to move money more efficiently to our property manager in Paris for repairs and maintenance of our apartment there.

A PayPal account is linked to a credit card or a bank account. If it’s linked to a bank account you can transfer funds between the PayPal account and the bank account at no cost. Note that, in this case, it will take at least 24 hours for the transfer to occur and might take up to a couple of days depending on the situation. The transfer from one PayPal account to another is instantaneous.

The other advantage of a PayPal account is that you can get a debit card to access the account. This could be your second debit card if you don’t want to deal with another bank account. You could keep some emergency funds in the PayPal account, to access using your PayPal debit card in the event your bank ATM card doesn’t work for some reason.