Foreign banks offer attractive deposit rates. However, it is worth checking the basics before taking a bid.
The interest rates of Finnish banks’ deposit accounts are close to zero. It is not surprising, therefore, that foreign banks, which offer far better interest rates, attract interest from small investors.
For example, Norwegian Bank Norway offers a 1.75% interest rate for deposits below EUR 200,000. The Swedish TF Bank’s interest rate on deposits is 1.6 percent.
Financial experts ask to review a couple of basic issues before concluding a contract with a foreign bank.
“First you shld find out the bank’s home country. It defines the client’s deposit protection if the bank is bankrupt or bankrupout, ” says Sanna Atrila , lawyer of the Finnish Financial Supervisory Authority .
In all EU countries, a deposit guarantee of at least EUR 100,000 has been set. Bank Norwegian’s deposits are part of Norway’s deposit guarantee. It is NOK 2 million, or at current exchange rates, of less than EUR 219 000.
Check any lifting restrictions
In foreign banks, opening a deposit account is usually free of charge. The customer first fills in the deposit application and transfers the money to the account specified by the bank.
Many banks will also accept small deposits, but some require a minimum deposit of EUR 1,000, for example. Deposits may also have a maximum amount, for example, 100,000 euros.
There are also differences in lifting rules. Bank Norwegian’s account has no lift restrictions. The Nordax account can be lifted free of charge 12 times a year. You will then have to pay a service fee of 1% of the amount to be raised.
Bigbank offers fixed-term deposits up to 10 years. If money is to be withdrawn before the end of the contract period, the customer will have to pay the service fee. It is 2 percent of the deposit amount, at least 60 euros.
Deposit protection is most sought after
At the last time foreign banks fought Finnish deposits ten years ago. At that time, there were Icelandic banks whose collapse in 2008 was scared by investors.
Insurance and Financial Advising Erik Sirén , the head of the board , says that the events behind the decade are still visible in contacts with foreign banks.
“We are asked the most about deposit protection and whether we dare to deposit money with foreign banks.”
Sirén asks to explore the company offering deposit services more widely and to look at what it says on its website about its activities and backgrounds.
“It’s important to look at the backgrounds if you plan to deposit more than your deposit guarantee.”
A foreign bank providing many deposit services is a company providing consumer credit. The hard interest earned from them makes it possible for banks to offer a good interest rate on deposits.
Service is not always available in Finnish
The web pages of foreign banks to Finnish customers are in Finnish. Contracts relating to deposits may also be made in Finnish or Swedish. However, it does not guarantee that everything will be done in your native language.
“We have had some contact with the fact that contrary to the customer’s expectations, the transaction has not been successful in Finnish. The bank must be able to speak the language before signing the contract, “says Atrila.
A small investor should also take into account the fact that possible disputes are resolved according to the domestic practices of each bank in the appealing bodies.
For example, in Sweden, consumers are advised in Konsumenternas Bank- och finansbyrå in case of problems. The dispute settlement body is the Allmänna reklamationsnämnden.
In Finland, the Fines and Consumer Complaints Board, which deals with consumer and bank disputes, does not extend to foreign banks.
Exceptions are registered in Sweden, but also Nordea and Handelsbanken in Finland. In addition, Bank Norway has signed an agreement with Finen.
“In other cases, litigation must be handled according to the bank’s domestic practices. Of course we can be in touch with us, so we can advise on where to contact, “Sirén says.
Interest received from abroad is taxable income in Finland, which is taxed as capital income. Taxes on capital income are paid up to 30 per cent up to EUR 30,000 and in excess of 34 per cent.
Foreign banks usually report their interest income to their taxpayers. According to state information exchange agreements, the information is likely to be transmitted to the Finnish tax authorities.
For this reason, interest income from abroad may already appear in a pre-filled tax return. “It is worth checking the correctness of the tax information. And if interest income is not shown at all, they must be declared in the tax return or posted on the taxpayer’s website “, says Juha-Pekka Huovinen, lawyer of the Confederation of Veronmaksajain Keskusliitto .