Dual Citizen - US/France - living in Spain - married to an Italian

[chozenpryncess]

I'm a dual citizen (France, US) and am married to an Italian; living in Spain.

I've got my savings in my EU bank account but cannot put it in a high-yield savings account on Raisin (or similar) due to being US citizen.

Where should I put this money in order for it to earn interest? We will need it to buy a home in the next year.

Would it be better for me to transfer it to my husband so he can put it in an account here or should I transfer it back to the US to put in a short-term CD/savings? Other? Advice appreciated as I HATE seeing this money just sit there doing nothing for me.

 

[rochendil]

@chozenpryncess If you can find an EU account that does not fall under PFIC, then you can use that high-yield saving account. Otherwise, use a US account for savings (Money market, conventional, treasuries, etc.).

You can use Interactive brokers to transfer money at the mid market rate (once a month). Though they don't like it if you transfer money but don't have anything invested with them.

 

[chozenpryncess]

@rochendil

PFIC

Do you know of any online accounts that do not fall under PFIC that I'd be eligible to apply to?

 

[rochendil]

@chozenpryncess No sorry, I never lived in Spain. Typically you would have to ask or see the prospectus of the saving account. Unfortunately it is complex and requires knowledge of PFIC: "A PFIC is defined as a foreign corporation that is owned less than 50% by US person(s) and: generates primarily passive income at 75% of above".

So saving accounts that whose interest are directly given by government bonds should be okay. If it is an index/a managed fund of government bonds, then it's not okay.

Also don't forget FBAR (reporting if above $10,000).

 

[rhemajoy]

@chozenpryncess Hey /@chozenpryncess so full disclosure, we're a financial wellbeing startup for people living abroad. We're also based in Barcelona and are quite familiar with the Spanish system.

You mention that you thought about transferring funds back to the US but are also saving to buy a place next year. The issue with doing this is that you're going to expose that money to currency risk. You could run into an issue where you might gain 4% in a USD high yield savings account, but if the dollar depreciates or the euro gains by 5% you'd wind up with a loss. (Of course, it could go the other way, but there's absolutely no way to tell).

Both Wise and Revolut pay interest on euro deposits without having to open a 'savings' account with them (which is actually a money market mutual fund and would trigger PFIC rules). While the rate isn't as high as the money market fund, it does do way better than most banks here.

These are 'safe' investments in so far as Revolut has a banking license (deposit guarantee) and Wise uses electronic money accounts which means they have to separate customer money and cannot lend it out (so if Wise were to fail, the money is safe).

You can also look into local term deposit or CD savings accounts. These accounts pay a bit higher interest rate than a normal or "sight" account where you can take your money at any time. The trade off is that you have to lock your money in over a set time period to gain the interest (if you pull the funds out before, you forfeit the gains). These actually might be appropriate for you if you know you'll need the funds in a year when you want to buy a place.

Evo Bank, Openbank, and WiZink all have term deposit accounts that pay better than the big four.

We did a short workshop on savings accounts at a coworking in Barcelona back in November. Here's the guide from that event (linked to the relevant section). Feel free to check it out.

Would be happy to speak on a 1:1 consultation as well (it's a new service we're launching). Feel free to sign up here if you're interested.

Hope this helps!

 

[chozenpryncess]

@rhemajoy Thank you SO much! This is just the kind of insight I needed.

 

[chozenpryncess]

I immediately checked into the Wise and I received this message "We can’t offer Assets to United States citizens or tax residents — or people who pay tax in multiple countries." I think most of the accounts for local savings are going to have the same issue. :?/

 

[rhemajoy]

@chozenpryncess So Wise can pay interest two ways:

• Via their "assets" accounts which aren't actually savings accounts.
• Through interest earned on balances sitting in accounts as a "cashback."

In the first case, when the customer signs up for their "assets" product, they actually get subscribed to participate in a money market mutual fund.

These funds invest in (very) short-term bonds -- think a couple of weeks, max -- and the overnight rate central banks pay to leave their money there.

Since this service is an investment fund and not a bank account, Wise can't offer it to US persons (and from a tax perspective, you're far better off avoiding it, anyways).

In the first case, everyone with a Wise account - including Americans abroad - receives some form of interest payment as a 'cashback.'

They're able to do so because they earn money on the total balance of their accounts. Unlike most banks, Wise decided to pass the majority of these earnings onto their customers, so they can benefit from higher interest rates.

Right now, EUR balances earn 2.28% interest, which is around the same as you'd get with those Spanish banks mentioned above, with a major difference:

The Spanish banks require you to leave the funds in the account for a certain time period (otherwise you lose the interest as they'll only pay it at the end of the term). With Wise, they pay the interest monthly so you're not locked in for 6 months or more. Unless the bank doesn't want to, Americans living in Spain can open these accounts as they're not investment funds but interest earned on deposits (so passive income).

You can read more about Wise's cashback program here:

https://wise.com/help/articles/b8sVSdAzytqVamfajSirb/how-does-balance-cashback-work

Hope this helps clarify a bit better. It's not a straightforward subject, especially when some of these digital competitors use the word "savings" to describe an investment fund.

 

[eee27]

@chozenpryncess Check gift tax rules for Spain (assuming that's your tax residence) before transferring large amounts to your spouse.

 

[chozenpryncess]

@eee27 Good point. Thanks!