Looking for Saving and Investment options for US Citizens Expats? American Expats living around the world can find it difficult to invest their funds with local banks and investment firms. This is due to the Foreign Account Tax Compliance Act (FACTA), which was introduced in 2013.
In this article, I will go over the savings and investment options available for US expats .
Most Americans living overseas will find it difficult to open an account with local banks and financial institutions. This is due to (FACTA). It requires all foreign Financial Institutions to identify the accounts held by American customers.
It is a burden that most overseas financial firms do not want to carry. For this reason, US expats can find it extremely difficult to find good options where to invest their funds.
Saving or Investing
There are some options available for US expats and it is important to know what is available for savings or investing.
With inflation approaching 10% in the US and UK it is important to choose the right investment vehicle that will protect you against the inflation risk. Savings interest rates have been really low the past few years and are not able to keep up with the rate of inflation we are experiencing now.
US expats will find that most savings options available to them will have next to 0% interest rate. On the other hand, it is a necessary place to allocate funds for daily expenses and an emergency fund. Any funds that can be invested for 5 years or longer should be allocated to an investment account.
The risk involved with investing
In order to get a return that will keep up with the current inflation rate, there is some risk involved with investing your funds. The main benefit of having funds in a savings account is principal protection. It is important to know that each country will have different guarantees for savings accounts.
In the US, FDIC insurance on deposits is $250,000 (USD) per bank per person. In the UK the FSCS will protect your first £85,000 (GBP). If you are willing to take some risk for a higher reward then you will find that investing your funds will be the best option.
Tax Implications for Investment Accounts
As an American expat you will find out that most US investment firms will not allow non-residents to open new accounts. As a financial advisor in the US, I have seen many account closures for clients living overseas.
Most firms will notify clients of the closure of their brokerage account after 3 years abroad. That can be a huge tax burden if your account is tax-deferred like an IRA or 401K. Here is some more information about IRA.
Common Mistakes Expats Make
- A really common mistake expats in general do is wait too long before saving and investing. It can be daunting for a US expats to start the process of finding the right place to invest their funds. It is important to find the right partner or firm that understands your needs.
- Leave all funds in cash or invested in a US brokerage firm. It is common for American expats to keep an American address for their US bank account but this is becoming a problem since the IRS knows the foreign residency and it is a matter of time before the bank finds out.
- Timing the market. With markets fluctuating it is tempting to want to time the market and invest only when the overall market is undervalued. Missing the top market-performing days each year is going to reduce your return dramatically.
Investment Options for Expats
At Harrison Brook, we offer a few different options for investing funds as an American expats. The platform used will depend on where you are located and the location of the funds. We can advise you on your current IRA or 401K and keep the funds in an American custodian so the funds never leave the US.
On the other hand, if you have funds to invest directly and are living overseas we have different options to invest your funds in an IRS tax compliant platform which will generate the 1099 form you need to do your taxes in the US. We have multi-currency accounts and it would be possible to retain or invest your funds in USD, EURO, or GBP.
To conclude, I would recommend all American expats review their US and overseas investment regularly with a financial advisor that understands the specific needs of American expats. It is important to have a customized financial plan adapted to the US expat client.
At Harrison Brook, we strive to give expats the best holistic financial advice. My experience as a Financial Advisor in the US will give you the assurance that I understand your situation and what you are going through as an American expat myself. Please don’t hesitate to contact me and I will be happy to help you.