Money Matters in France
Volume XXI, Issue 45
Last night we held our North American Expats in France Quarterly Financial Forum—4th quarter—with special guest, Daniel Tostado, to discuss “relocation and immigration for Americans moving to France.”
Daniel Tostado is a French attorney (“avocat à la cour”) and US attorney-at-law (licensed in the state of New York) who runs a law firm in Paris for French-inbound immigration. He handles French visas, residency permits, and naturalization applications and offers both consultations or full-on assistance depending on the needs of each applicant.
As it turns out, Daniel is assisting me in filing for French citizenship, which is no easy task! Now that the application is in, our fingers and toes are crossed for the next year or more until the immigration authorities get around to processing my application and calling me in for the live interview when they’ll determine if I’m worthy of citizenship or not! Daniel has been more than “helpful”—if it weren’t for him, this never would have happened! The process is daunting, to say the least.
Nevertheless, his part of the forum was all about immigration, but my part of the forum was all about the needs of newcomers to France and what they should plan for when handling their finances in France. It’s tough enough to manage your money when you’re a tourist traveling to a foreign country with a different currency. Imagine what it’s like to manage your finances when dealing in two currencies on two continents? That’s what you may be dealing with should you choose to spend any length of time in France or own property here.
The first thing you must understand is the rate of exchange between one currency and the other.
The majority of the Foreign Exchange Market (“forex”—the buying and selling of world currencies) consists of three major segments: Australasia, Europe, and North America. Australasia includes the major trading centers of Bahrain, Sydney, Tokyo, Hong Kong, and Singapore. Europe includes Zürich, Frankfurt, Paris, Brussels, London, and Amsterdam. The North America region includes New York, Montreal, Toronto, Chicago, San Francisco, and Los Angeles.
The banks set their exchange rates based on minute-by-minute trading. Reported rates differ bank-by-bank and minute-by-minute. Rates for buying a currency differ from rates selling a currency. The difference between the price a dealer will buy and sell a currency is known as the “spread.”
At the time of this writing, the current dollar vs. euro rate of exchange is approximately $1 = 0.9197346€ or 1€ = $1.08727.
Exchange rates fluctuate for a variety of reasons, however, it’s clear that your U.S. greenback is going to buy you a little less in France…for now, as the rate is always changing. The good news is that should you make a property purchase in France, you will be hedging your bets by divesting your assets and investing in a strong currency.
Don’t make the mistake of asking your commercial bank to make the transfer for you, as the banks notoriously charge high fees and commissions; about 3% in the spread. Be smart and use a professional currency broker which charges about 1% in the spread. Why give the bank that extra two percent for no reason whatsoever when you can do business with a broker for which this is their primary business?
Next, don’t make the mistake of using just any currency broker. Online traders such as Wise can seem simple and easy on the surface, but you won’t necessarily get the best rate and they won’t offer valuable services that other brokers do. We have many years of experience with three brokers in particular: Moneycorp, Currencies 4 You and OFX.
For example, with currency exchange specialists, they offer what’s called a “forward contract,” which allows you to fix an exchange rate at which you can buy or sell currency for delivery at a later date (up to two years ahead!). Forward contracts protect against adverse currency movements and can be used to lock in favorable exchange rates. This is particularly important when moving large sums of money…such as when you’re making a property purchase!
See our Currency Exchange Services for more information. Should you contact any of our partners, be sure to tell them Adrian Leeds sent you!
Opening a Bank Account
Getting a bank account in France is nowhere near as simple as it is Stateside, where friendly account managers sit waiting at their desks to welcome you. Banks in France prefer to establish a solid relationship with a customer that will lead to provision of more services and can make subjective decisions on who they want as customers. On top of that basic philosophy, FATCA has played havoc with accounts granted to foreigners.
If you don’t know what FATCA is, then take note now: “The Foreign Account Tax Compliance Act” (FATCA), which was passed as part of the HIRE Act, generally requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. The HIRE Act also contained legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets.” (See irs.gov)
French banks have struggled to comply with FATCA, which requires them to ask their American account holders for their ITIN (Individual Tax Identification Number), or their U.S. social security number—many Americans living in France, including thousands of so called “Accidental Americans,” don’t have either of these though—and compels the foreign banks to provide the IRS with balance and contact information relating to all American citizens and green card holders, or otherwise pay a tax when they trade in U.S. money markets. The banks are loathe to comply, finding it difficult and expensive. Therefore, many have chosen to deny Americans accounts.
Expats are also required to report their foreign bank and any other financial (e.g. pension, and investment) accounts that they have control or signatory authority over if the combined balances of these accounts exceeds $10,000 at any time during a year. They do this by filing an FBAR (Foreign Bank Account Report) online, but don’t worry—no tax is due on it.
(Just as an aside, FATCA, which is a major thorn in expatriates’ paws, has been blamed for one in five U.S. expats planning to give up their U.S. citizenship.)
With a residence visa of some sort (Carte de Séjour or Carte de Résident), you can more easily make an appointment with a French bank to open standard checking and savings accounts and subscribe to the French Visa, “Carte Bleue.” Without the visa, if you have proof you own property (copy of a “Promesse de Vente” or “Acte de Vente”) or have a long-term lease, you will also be more readily welcomed…as long as they haven’t shunned American customers, as most have.
To make an appointment, you must call or stop into the branch and request to see an account manager. An appointment for a future time will be made. It is best to have a “sponsor” call for you or make the referral. A sponsor is someone who is already a customer of the bank who can introduce you. This is a very important step in establishing a proper relationship with a bank as money is NOT what talks in France…but trusting and honorable relationships do. If you attempt to show your clout by how much money you will deposit in their bank, you are likely to fail! And believe it or not, accounts are opened without depositing a single centime…but of course, you’re not getting too far without money in the account! And bouncing a check is illegal in France and is subsequent to fines. Your account could be frozen and drastic measures could be taken which could deny you the right to a checking account for years. We recommend maintaining an appropriate balance in your account at all times.
We offer the service of opening a French bank account to our clients as we have developed strong relationships with banks in both Paris and Nice. See Open A Bank Account for more information about this valuable service.
To wire funds from your U.S. bank, you will be asked for your account number along with a “Routing Number,” “Swift Code,” “ABA Number” or “Sort Code.” They all look similar. This number is found on your checks along with your account number.
To transfer money to a European account, the numbering system is different. Get ready to learn the acronyms: IBAN, SWIFT and BIC, and SEPA…
An IBAN is an International Bank Account Number—a standardized international system made up of up to 34 characters. The first two are letters and denote the bank’s home country; the next two are “check digits” which act as a control; then a series of numbers that identifies both the bank and your specific account.
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. It makes international transfers between banking institutions easier, but it gets more complicated because SWIFT is in charge of registering BICs—Bank Identifier Codes—which is why the acronyms SWIFT and BIC are often seen together…or confused because they are the same number and therefore interchangeable. BIC stands for Bank Identifier Code (or officially, Business Identifier Code). Unlike an IBAN, a BIC identifies your bank, rather than you, individually. Both are either eight or 11 characters long and identify the bank, the country, and the location within that country.
SEPA is the Single Euro Payments Area. Countries in SEPA can transfer money between each other via a system designed to be more efficient than the worldwide SWIFT network. The goal is to make payments within SEPA as easy as domestic payments. The SEPA zone constitutes all the countries in the European Union regardless of whether or not they use the euro: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, UK Other non-EU countries that form part of the SEPA zone are: Iceland, Liechtenstein, Norway, Switzerland, Andorra, Monaco and San Marino.
In France, you may often be asked for your “RIB”—or Relevé d’Identité Bancaire, meaning “statement of banking identity,” or just another way of saying bank account details. It is merely a pre-printed form with your bank account number and sort codes for national and international transactions. It is always a good idea to have a few handy, which your bank can supply free of charge. Most check books will include two or more RIBs that you can easily tear out and send. The IBAN, BIC/SWIFT codes printed on the RIB are used whenever you need to set up electronic payments either from or to your bank account. You will find this absolutely necessary when you are setting up recurring payments such as your phone and other utilities.
Handling cash will be the easiest transition to make. You need only become familiar with the euro notes and coins. You may not like the heavy coins that denote one and two euros, but you will enjoy that the bills are different designs and sizes based on denomination, unlike U.S. Greenbacks. To prepare for a trip over (we hope that will be soon!), you need only enough euros with you to get you from the airport to your final destination and a bit beyond, otherwise you risk paying high rates of exchange on more than is necessary.
If this is your first time over, you might be able to buy euros at any major bank in your city. Gone, gone, gone are the days of travelers’ checks…fortunately (remember how cumbersome that was?). Avoid the airports’ and hotels’ exchange offices because of exorbitant transaction fees and commissions. Credit and debit cards at the airport or once in the city are the best way to get cash via any one of the automatic teller machines (ATM)—at the airport, and at almost all the bank branches and post offices. Generally bank cards offer favorable exchange rates for changing small amounts of money since credit card companies have access to better rates than individuals.
Keep in mind that your withdrawal may be subject to a fee (about $1.50-$5), so check with your bank before leaving home or verify this online if their website publishes this rate. The other point to note is that your bank may freeze your card if out-of-the-ordinary transactions appear (such as withdrawals in four different countries over the course of a week), so keep a copy of your bank’s contact information on hand or notify them in advance of your trip. There are also limits to how much can be extracted in any given day, usually about a $500 value. Do not expect to be able to enter the bank and request a “cash advance” on the card. Most banks in France will not know how to handle this kind of transaction and others will have strict limits on what amount they will allow. Be prepared to show an ID, such as a passport and don’t be surprised if they flatly refuse you unless you are already a customer of the bank.
“Credit cards” differ from “debit cards” in that a credit card will charge interest on the amount advanced until it is paid, while a debit card extracts cash directly from your account. Also, many credit cards have fees attached to foreign transactions which vary from 1% to 4%. If this information is not printed in your credit card agreement (often it’s not!), phone the company and specifically ask what foreign transaction fees you can expect. Don’t be surprised if the customer service representative doesn’t even understand your question! The idea of different currencies may be as foreign to them as is the lunar surface! It is best advised to use your French credit/debit cards in France and your U.S. credit/debit cards in the U.S. to reduce transaction fees, or ensure that the cards you’re using are free of them. That being said, I use my U.S. cards regularly in order to accrue mileage or points and find it an easy and inexpensive way of getting money out of my U.S. bank accounts. Capital One is one of the best credit cards to use as it has no foreign transaction fees and their rate of exchange is competitive. Some of the credit cards they offer also give you two points for every dollar spent—about two percent that can be used as credits against travel and other expenditures.
Watch out: some merchants in France will offer consumers the option of paying in their own currency, which is called “dynamic currency conversion (DCC). You may even notice this choice at an ATM! Don’t select your own currency because the rate will not favor the consumer…it’s yet another way the banks make their money, so why add to the bank’s profit at your expense?
Online banking is very useful, but you likely already know this. Within 48 hours a foreign transaction will appear on your bank or credit card statement so you’ll know what rate of exchange you’re getting. From long distance you can often pay bills and transfer funds between accounts within the same bank. If you’re not banking with an institution that provides this service, consider making a move to one that does. The French banks now provide online service, but at a small monthly cost while U.S. banks provide it free of charge.
French banks charge for their services differently than U.S. banks, so don’t be surprised when suddenly you have to pay just to have online access to your account. Depending on the bank’s policies, checking accounts and checkbooks can be free or charged. Savings accounts often yield a very small amount of interest and the rate depends on the bank. Carte Bleue is actually a debit card as the funds are extracted from your checking account automatically in total for the month at the end of the month. There are no outstanding balances and no interest is charged. There are annual fees associated with the right to have a Carte Bleue. It can be used to make purchases or extract cash from your account at any ATM—with a four digit Personal Identification Number (PIN) rather than a signature. Expect the cost of having a French bank account to be about 10€ a month, on the average.
To get an idea of a French bank’s tariffs, visit CIC’s website.
Paying bills in France can be particularly easy via the RIB system of automatic debit from your account, called a “prélèvement.” Utility and phone companies prefer that your bills be paid in this way. When you provide this, you authorize the debtor to extract the funds from your account. It’s particularly useful for absentee homeowners so that their electricity and telephone bills are paid in full and on time without worry. Lenders holding a mortgage will require that the monthly payment be made this way. Therefore, having a bank account in France is mandatory.
Getting a Mortgage
The good news is that interest rates are much lower in France than they are in the U.S., but the bad news is that obtaining a mortgage here is not as doable as it once was, largely “thanks” to FATCA.
Going directly to a commercial French bank as a non-resident is a complete waste of time. Unless you have a regular salary going into a French account, they tend not to be as interested in dealing with foreign clients. But there are a few French banks which are set up particularly to work with non-residents.
The paperwork and requirements to obtain a mortgage are fairly simple and similar between institutions. Loans in France are based on your income, not your assets, and the monthly amount of the mortgage cannot be more than one-third of your monthly income. You can obtain financing for 10, 15, 20 or 25 years at variable or fixed percentage rates (depending on your age up to 75) and a variety of loan products are available, even interest-only loans. Lengthening the term of your mortgage or opting for interest-only can help reduce currency exchange losses. Lenders base their rates on the Euro Interbank Offered Rate (“Euribor”)—the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank. At the time of this writing, it is under .6 percent.
The banks charge a small origination fee of approximately one percent. A life insurance policy attached to the loan is mandatory to insure completion of payment. Prior to making a property purchase, it is recommended you contact a mortgage broker well in advance who works with these specific international lenders to submit an application for a pre-approval “in principal.” It is not until a property is committed to (having signed a “Promesse de Vente” or “Compromis de Vente”) that the lender will formally submit your application for approval by the committee.
Our preferred mortgage broker in France is Simon Conn. Contact Simon and be sure he knows we referred you. See our Get Financing page for more information.
Mastering Your Money
Before you do any of this, the best advice I can give is to plan your finances by working with professionals who know how to diversify your assets, make smart investments and set up your estate for a bright and secure future. Brian Dunhill, with Dunhill Financial, here in Europe is the best in the business. Brian and his team offer independent advice and personalized solutions for each client based on their individual situation. Their advisors have a wide breadth of experience working in multinational firms and can help you feel secure in an environment of trust, discretion, and confidence. I can tell you from my personal experience that you won’t find better advisors who understand the global picture for your future life in France or anything you wish to achieve.
For more information visit the Dunhill Financial website.
There is no one easy solution to mastering your finances in a foreign country. As long as you never stop asking questions and pursuing new avenues to reduce your risk and costs associated with transferring funds, you will have succeeded in at least controlling some of your destiny—as you have no control over the rate of exchange or the policies administered by financial institutions.
“Si non, bonne chance and bon courage!”
The Adrian Leeds Group®
P.S. As is our usual schedule, there will be no French Property Insider on Thursday, November 23rd in honor of American Thanksgiving. We will be celebrating it in Nice with our community together…so join us! There are only a few seats left, so visit our Après-Midi page to reserve your spot before it’s too late!