Investing in foreign banks can be rewarding or, at times, can be costly. Like all investments, guarantees are few and success is determined by a wide diversity of conditions - most of which are outside of your control. Investing in offshore or foreign banks is a bit different than typical equity (stock) investments in most companies. You have the choice to purchase stock in a foreign bank or create a deposit relationship for a stated return on your investment (interest to be paid). Both are investments in the operations of the business entity. Here are the steps to make that investment should you decide to do so.
Research the foreign banks you might consider as a good investment. If you're unsure how to evaluate the strength or weakness of these entities, use the Internet or a trusted professional to perform the analysis for you. To receive information on banks and credit unions in the U.S., go to the link in the Resources section below to observe ratings. More information on international banks is also available in the Resources section.
Learn about the political and economic "climate" of the country in which your potential investment will be made. U.S. residents can sometimes forget that foreign politics and/or economics can greatly affect the stability of the banking system. In the U.S., most people are aware that common stock investments are always at risk and have fluctuating values, but depository relationships enjoy federal insurance up to $100,000 of protection. This assurance is not necessarily available in foreign locations. The safety of an equity investment (purchasing stock) may also be affected by political developments in some offshore and foreign countries.
Decide "how" you would like to invest in one or more foreign banks. Do you want to purchase some of their available stock or are you more interested in making a savings account deposit, purchasing a certificate of deposit (CD), or creating another form of deposit relationship. Purchasing some outstanding stock is, obviously, a classic investment choice. But, when investing in a bank, creating a deposit relationship or putting funds in a certificate of deposit or similar product, results in an investment also.
Use the Internet to arrange an electronic trading or investing account or set up a relationship with a licensed trader who can process offshore or international investments. Should you decide to create a direct depository relationship with a foreign bank, you can, if you feel comfortable, coordinate the transfer of funds yourself.
Learn about the exchange rate if your investment will be transferred to a country using currency other than U.S. dollars. Currency rates and conversions can often vary hourly, much less daily or weekly. If you've decided on a fixed amount you're willing to invest in one or more foreign banks, you should be aware of the level of investment in the local currency you will receive for your U.S. dollar commitment.
Go forward and make or order the transfer of funds once you're satisfied that this investment is the right one for you. Once you have evaluated the risks and the rewards of this investment, do not delay completing the transaction. Financial conditions can change very quickly - for better or worse. If you have done all the research, compiled all the data, and made your own evaluation of the wisdom of this investment, make it happen. A further delay may - or may not - work in your favor. Either way, you'll then make - or not make - an investment based on data that may - or may not - still be valid.
Tips & Warnings
- Using the Internet can often save money on the cost of investing.
- Tap the power of the Internet to gather information about potential investments.
- Become comfortable with the rating system and published financial data provided by foreign and offshore banking institutions.
- Don't make an investment if you're not comfortable with the process. Consult a professional.
- Avoid making positive assumptions based on negative data. A foreign bank showing poor operating results, but implementing a sound program for improvement may be a good investment. But, do your homework. Negative financial results should be strongly supported with evidence of recovery programs that are working.
- Don't assume that foreign and offshore banks are as closely monitored, regulated, and insured as U.S. financial institutions.
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