Query on saving in the USA
 

Hi
I am a British citizen and travel a couple of times a year to the USA (no longer than 3 months per year)
I have a bank account there which I have some savings in and wanted to know if there would be any disadvantages to saving dollars there with a view to buying a property in the future?
Is there any restriction to how much I can save/tax implications etc and is my money safe?
Its a Chase account.
Thanks in advance!
Allan

Re: Query on saving in the USA
 

If it's an interest earning account, you've got tax liability hassles with filing with the IRS.

Savings account rates are shit here.

Buying a property doesn't give you any rights to live here and managing a place remotely can be quite costly and/or hassle depending on where it's located.

Re: Query on saving in the USA
 

My guess is that the account does not pay any interest, so not a lot of point.

Maybe something to discuss with your Financial Adviser.

Re: Query on saving in the USA
 

All US bank accounts, brokerage accounts (unless you choose otherwise), and most credit union are currently FDIC insured (federal government insurance) to $250,000 (per bank per customer). Credit unions that do not have the name "Federal" in their name and some foreign banks insure their accounts through a private insurer.

To not pay US taxes on account gains/interest, you need to file form W8-BEN.

Re: Query on saving in the USA
 

Which isn't much use as the government has something like 100 years to return your funds if the bank goes poop...

Re: Query on saving in the USA
 

Where did you hear that? The FDIC has always taken over insolvent banks during the weekend and reopened the doors for business on Monday. Most people using an insolvent bank don't even know that the bank was taken over by the FDIC until they hear it on TV or the newspapers. Depositors money is immediately available on Monday morning and ATMs work during the weekend.

Once the FDIC takes over a bank, it recapitalizes the bank and tries to sell it on the open market as soon as possible. For some banks, they can find a buyer immediately and others can take years (eg. Continental Illinois Savings & Loan took 10 years to sell in the 1980s). Occasionally the transfer occurs during that weekend of the takeover (eg. Washington Mutual to Chase in 2008) since the government doesn't want to run a mega bank even for a few days. In the case of Washington Mutual the government negotiated with Chase during that weekend and ended up removing $30 billion of toxic assets to get Chase to take over the liabilities and assets of Washington Mutual for a $1.9 billion payment to the government.

Although Washington Mutual cost the government more than IndyMac, IndyMac is considered the biggest US bank failure ever due to FDIC accounting practices.

During this recession, nearly 400 US banks have already failed and have been taken over by the FDIC. The most difficult bank to sell was IndyMac which took 9 months to sell at a cost of $9.7 billion to the government.

Re: Query on saving in the USA
 

UK banks work in a similar fashion to US banks. However there was the recent case of the Icelandic bank failures where it took the UK government almost one year to pay off depositors.

The reason that the Icelandic banks became a problem was that the Icelandic government and the owners pulled out all the assets of the UK and Netherland branches before it declared insolvency. The Icelandic government used the assets to pay off depositors in Iceland and the owners hide the assets. Assets of international banks are supposed to be held and invested separately for each country so that this should not occur and each country will have assets remianing to pay off depositors (possibly subsidized by government funds for any shortfall).

Germany and other European governments got a clue that something fishy was going on and froze the local branches assets before they could be removed but the UK and Netherland governments had their head up their arse.

This had the UK government confused since normally their banking laws only protect depositors against legitimate bank losses and not fraud. Therefore it almost took a year to figure out the law and pay off depositors. Now the UK government is going after Iceland and the owners for the money that was taken.

Re: Query on saving in the USA
 

Yes, they've always taken them over quickly, but that's not to say that that will always be the case and the government can take up to 100 years to pay you your insured money if the bank goes poop and they aren't able to get the bank squared away.

It had been a max of 50 years until all the banks started going poop and needed the bail out, which scared the government into giving them a larger buffer if needed.

Re: Query on saving in the USA
 

But it has never happened that someone could not immediately get their money since the FDIC started insuring banks following the great depression.

During the saving & loan crisis of the 1980s, about 750 banks were taken over and not one depositor was not able to get his/her money immediately.

FDIC banking laws state that depositors must have access to their accounts all the time during insolvency. To say that the the government may take 100 years would be like saying the world could be hit by a large asteroid. Both are possible but unlikely during my lifetime.

Even depositors in Greece and Ireland will be paid. Greece and Ireland may default on government bonds and corporate bank bonds but depositors will all be paid in a reasonable time period. This is because all governments know that once a bank does not pay off depositors quickly, there will be a run on all banks within a country causing all banks in the country to become insolvent. This is what occurred in may countries prior to the great depression (no banking insurance) keeping banking systems very small and economies growing slowly since people were keeping their money under their mattresses.

The only country that may have a major problem in the future is Japan. It has a national debt that is over 200% of GDP and is different than in all other countries in that the debt is about 95% paid for by bank deposits. In most other countries, the government will just default on bonds if the debt is too high (that can be expected by an investors since since bonds are an investment and liable to default) and pay off depositors. In the case of Japan, retirees are eventually going to be needing that money and Japan will need to print money or default. Likely they will print money and devalue their currency.

In most other developed countries, none of very little of the national debt is covered by bank deposits. In the US, 0% of the national debt is covered by bank deposits and about 33% of the debt is covered by government trust funds (about $4.6 trillion worth of government trust fund money (mostly social security and medicare trust funds) has been loaned to the federal government in exchange for t-bonds). All the rest of the debt is held in t-bonds by foreign countries, states, pension funds, and investors.

So in most cases, governments default on government bonds and not deposits. This can be done since deposits by law are more senior than bonds which are more senior than preferred stocks which are more senior than common stocks. Deposits hold the same seniority as someones salary which both have to be paid in full during a bankruptcy before any other debts can be paid.

Re: Query on saving in the USA
 

On your original point about savings in the USA, I'd generally say "why bother"? The interest rate you'll obtain will be dwarfed by the currency exchange rate movements in a matter of weeks. I don't really see the point of saving in US$ unless you currently believe US$ are the strongest currency in the world to put your savings in (a debatable to laughable point).

My advice is, if you want to save in a currency, try to pick one that you have the most faith in over the next XX years. If you want to buy Gold or Stocks or other investments, consider that as well. You can always buy US$ at a later date (and probably for a bit cheaper than they are costing right now)...

Many banks, such as HSBC Premier, allow you to open a savings account in a foreign currency while in your home country, thus removing the IRS tax notification requirements in a 3rd country and giving you easy access to your funds should you want to shift between currencies or take it out entirely (vs. some dealing with some odd online site in the US in the middle of the night, etc).