Most of us don’t give much thought to the bank we use, and generally take it for granted that we’ll always have easy access to multiple banking options.
But have you considered what to do about banking when moving abroad? You may not always be able to keep your old bank when you relocate.
The good news is that there are plenty of good banks in Costa Rica that are perfect for the expat community. The country boasts an excellent public banking system with a number of reputable private banks.
Many U.S. banks do have their own branches in Costa Rica, so if that’s the case for you, it may make it easier to make the switch.
Setting up a bank account in Costa Rica can be a temporary headache. The process works a little differently than in the United States, so it’s important to research your options carefully.
Here are some guidelines to help you navigate the process.
Costa Rican authorities are serious about fighting money laundering and terrorism. The country signed the Inter-American Convention Against Terrorism in 2006, and has since passed new legislation to address these concerns.
In 2009, the Costa Rican Financial Regulatory Agency passed new provisions requiring banks to certify income of all depositors. All customers must provide a statement and pay stub from their employer to open a bank account. Independent contractors can use a certificate of income from a certified public accountant instead.
If you're self-employed, then you must make sure your business is registered and operating legitimately. You'll have to convince a CPA that you aren't making money by trafficking drugs or engaging in other illegal activity.
The Costa Rican government operates a number of state-run run banks throughout the country. The government’s hands-on operational involvement is one of the biggest differences between the Costa Rican and U.S. banking systems.
There are plenty of quality private banks throughout Costa Rica. However, most residents actually prefer the state-run banks, because they offer more protection than privatized banks. Here are a few benefits of the state-run banking model:
Political activist Scott Bidstrup wrote a detailed commentary praising the public banking system:
“For the last decade, I have resided in Costa Rica, where we have had a “Public Option” for the last 64 years.
There are 29 licensed banks, mutual associations and credit unions in Costa Rica, of which four were established as national, publicly-owned banks in 1949. They have remained open and in public hands ever since – in spite of enormous pressure by the I.M.F. [International Monetary Fund] and the U.S. to privatize them along with other public assets. The Costa Ricans have resisted that pressure – because the value of a public banking option has become abundantly clear to everyone in this country.
During the last three decades, countless private banks, mutual associations (a kind of Savings and Loan) and credit unions have come and gone, and depositors in them have inevitably lost most of the value of their accounts.”
There is one major downside to the public banking system: the lines are longer in state-run banks than in private banks because the majority of Costa Ricans use them. You'll receive more expedited service at a private bank.
Decide whether or not the risk of using a private bank is worth it. Remember that private bank deposits are not insured, so you risk losing everything if the bank goes under.
Many U.S. banks no longer require minimum deposits or balances. It’s likely they changed their policies because they have enough depositors and liquidity to operate smoothly.
This isn't the case in Costa Rica. The population is smaller than that of the United States, and consequently there are fewer banking customers. For a variety of reasons, minimum deposits are required to operate efficiently.
Fortunately, the minimum deposit required by Costa Rican banks is relatively low. Some banks allow you to open an account for as little as $25. Other banks have minimum deposits up to $100.
The United States is one of the few countries with a worldwide tax system. This means that you must report all income to the IRS, even if you are living and working in Costa Rica.
Not every expat will end up owing taxes to the IRS, but you are still required to file a tax return and report any income. The U.S. tax code has a Foreign Earned Income Exclusion, which allows you to avoid taxes on foreign income up to $100,800. However, you could still be audited and forced to show banking statements to prove that you fall beneath this limit.
Costa Rican banks are also required to report the income of all U.S. citizens to the IRS. Talk to an accountant in the United States to find out what types of income are taxable, such as pensions, some Social Security income, and monetary gifts. You may need to provide documentation for the IRS if you are audited.
You must be a resident of Costa Rica before you can open a bank account. Be prepared to show a proof of address and residency status when opening an account. A utility bill or signed statement from your landlord will usually suffice.
Costa Rica requires expats to make a $60,000 deposit with a Costa Rican bank to qualify for rentista residency status. If you’re seeking such status, you need to show your visa application and documents from the embassy to qualify for an exception to the residency requirement.
Securing a loan in Costa Rica has become more difficult in recent years. Banks were forced to tighten credit requirements after the 2009 financial collapse, and are unlikely to loosen their policies anytime soon. This can sometimes make it difficult for anyone looking to buy a home.
Building credit will take some time. Luis Fonseca, sales manager of BMW in San Jose, told the Tico Times that banks are still reluctant give loans to many of his expat customers.
“If you don’t have residency, then probably the only way is if you get a loan from out of the country or if you buy with cash,” he says. “Otherwise, no bank is going to give you credit on it.”
It will probably be easier to secure a loan from an international bank that has a branch in Costa Rica. For example, CitiBank and Bank of America both have branches in Costa Rica.
If you choose to go through a Costa Rican bank for a loan, be prepared to pay a steep down payment. Banks require a larger down payment for expats because of their shorter credit histories. Fonseca explains that you may need to make at least a 50% down payment to qualify for a loan.
Costa Rica also has fewer anti-discrimination policies than the United States does. For example, very few banks offer loans to borrowers over 65. Therefore, senior citizens will need to consider other options.
You may make payments or receive money from the United States Government or other organizations in Costa Rica. Some banks offer dual currency accounts, which can make your life much easier, because you won’t need to constantly convert your colones to dollars.
You may benefit from a dual currency bank if:
Dual-currency banks can help avoid the cost of exchanging currencies. Contact the bank branch in advance, as not all Costa Rican banks offer dual-currency accounts.
Costa Rica is a very small country, and many Americans fear that the banks have too few deposits to stay afloat. However, this fear is entirely unfounded. A 2008 World Bank Survey found that Costa Rica actually has some of the most stable banks in the world.
Costa Rican banks are more stable because the Central Bank of Costa Rica enforces strict liquidity and lending policies. Many Americans may be surprised to learn this because the country has a reputation for having very neoliberal economic policies.
While private banks aren’t insured like their United States counterparts, they rarely face solvency problems. Nevertheless, if you’re worried about the safety of your money, then you should store it in a public Costa Rican bank.
There are plenty of fantastic banks to choose from in Costa Rica. It’s unlikely you’ll have trouble finding one that suits your needs. Your best option is probably to open an account with a public bank, because they offer more protections.
Have you found a good bank in Costa Rica? Please feel free to share your thoughts in the comments below: