What sort of banking do you use when living abroad? Don’t foreign transaction fees add up? Are your credit/debit cards even useful abroad?
Easily one of the most common question I have been asked by newly hired providers, and in general one of the most common questions you see repeatedly on the FS Subreddit. Several months back I did an AMA on the actual finances of the Foreign Service, but today we can talk a bit about where that money goes and what some of the best institutions are for managing money while living abroad.
My first answer is to choose a bank or keep using a bank you are comfortable with. It really doesn’t matter if it’s a local credit union or a big box bank like Chase or Wells Fargo. If you have a lot of bills, mortgage, or other things lined up with a particular institution, there is no need to completely undo it. Instead, the best thing to do is augment it.
In my case, I use Wells Fargo, mostly because I have been with them for 20 years now, have my mortgage and many of my bills auto-deducted with them, and the thought of unravelling it gives me a headache. Most domestic banks like this have HORRIBLE policies when living abroad. Pulling money out of a foreign ATM will cost you 2-3% of the value you pulled on top of whatever local and foreign ATM fees charged. If you use your debit card and many credit cards, you’ll get hit with a 3% foreign transaction fee. Bottom line, they’re not friendly to people living overseas.
Well then why keep them? Banks like this can easily be augmented with other services that eliminate the risk of incurring any sort of foreign transaction fees or whatever else they want to do.
My first recommendation would be to open Schwab Investment Checking account. This service is basically too good to be true. It costs nothing to open, no minimum balance needed, and what it does is give you a checking account that charges no ATM or foreign transaction fees for any ATM in the world. Even in the U.S., if you make the dumb decision of pulling $40 from an ATM in a 7/11 that charges a $5 ATM fee, Schwab will reimburse it. Pulling local Mauritanian currency from an ATM here also costs nothing in terms of fees and they give me the exact foreign transaction rate at no cost. Every month I just transfer some money from Wells Fargo to Schwab, and I am good to go. It has been great for getting cash on all the various trips we have taken.
If you’re a diplomat, most embassies also offer cashiering services that allow you to pull local currency with a U.S. bank check, and it is treated as a domestic transaction, allowing you to continue using your domestic bank of choice to pull money abroad at no cost to you.
My second recommendation is get an awards credit card that has no foreign transaction fees, and rewards spending related to travel. Chase Sapphire/Reserve, AMEX Platinum, and Venture X, are all great cards meant with travelers in mind. Some have significant annual fees, but they all also come with perks that nearly offset the annual fees. Typically they offer 3-5x point bonuses for travel and restaurants. I personally use a Chase Sapphire Reserve card for all my travel needs, and since joining the Foreign Service, the amount of points I have accumulated through travel has basically funded all the nice hotels stays I have had on my various R&R’s. I would have spent the money on the travel anyway, and this gives me a way to avoid foreign transaction fees while also reaping nice rewards. I will caveat this recommendation and say it is only worthwhile if you are disciplined with credit cards and are able to keep the balances near 0 each month.
My final recommendation if you are about to be a diplomat is consider opening an account with State Department Federal Credit Union. I say consider because their customer service reputation is terrible and their online banking a decade behind the rest of the world, but they will let you finance a car and take it overseas if you can’t pay for it with straight cash. This is big because most banks/finance companies WILL NOT let you take your car abroad to the heart of Africa or wherever while you are still paying for it. SDFCU will. They will also let you get a mortgage on a house, treating it as your primary residence, even if you are going to be living abroad for several years. No other financial institution will let you get away with this, but because they understand our circumstances, they will. These are very niche things, so not for everyone, but something to consider. I personally opened a checking account with them as well as a CD account since they have great rates, just to have an established relationship if and when I ever needed to fund another mortgage.
Finally, honorable mention goes to USAA and Discover Bank. USAA is a pretty good bank that understands our transient lifestyle, but the real benefit comes from their decent auto insurance policies that can be used in several countries abroad, and they have great rental auto insurance that is wonderful for prolonged rental situations like when on home leave. Again, sort of niche, but some folks swear by them. Discover Bank is great because their savings accounts offer really high interest rates, as do their CD’s. As I write this their online savings accounts offers a 4.35% APY with no minimum balance and a 12 month CD has a 5.20% APY. Easily some of the best rates on offer outside of small regional credit unions.
In summary, banking abroad isn’t that complicated. Just find yourself a good credit card that avoids foreign transaction fees, and open up a checking account with a company like Charles Schwab that lets you pull money worldwide with no fees of any kind and no needed minimum balances needed. Even if you are based domestically but love the travel, the above recommendations are still solid advice and I wish I would have opened a Schwab account sooner. Until next time, travel smart!
