All that expats need to know about banking in the Philippines: credit cards, debit cards, checking accounts, Social Security and pension direct deposit, wire transfers, Internet banking.

Our first advice to foreigners living in the Philippines is to keep the bulk of your financial assets in your home country.  Here are a few reasons.  If you have substantial assets it’s best to keep that fact strictly to yourself.  That’s difficult to do if you keep your funds in a Philippine bank.  Bank employees gossip, especially if you live in a place with fewer foreigners. You’ll receive bank statements through the insecure Philippine Postal Service.  There have been instances where bank insiders have sent text messages to compatriots outside when a foreigner withdrew a substantial sum.  Shortly thereafter, the foreigner was robbed at gunpoint. Our bank tells us that rich Chinoys (Filipinos of Chinese heritage) do not allow their name or address to be printed on their personal bank checks. They don’t want anyone to know anything about their financial affairs.

Whatever your financial circumstances are, it’s best to promote the impression that you are retired on a modest pension which will end when you do.  Depending on your relationship with your girlfriend or wife and her family, such a impression is very worth giving.  It may be an ego boost to appear affluent in a poor place like the Philippines, especially if for the first time in your life you are relatively wealthy.  This will only expose you to the interest of cash-starved locals and foreigners and 101 schemes to get at your money, in some cases dead or alive.

Deposit insurance in Philippine banks is limited to P500,000 pesos or about $10,000 and there are limitations on the insurance coverage.  Many foreigners, including our friends, have lost money in too-good-to-be-true accounts in Philippine rural banks.  Most are still awaiting reimbursement from the PDIC.

Despite the recent travails of American and European banks, it’s unlikely that an individual depositor will lose money and if there is a problem there are effective consumer protection laws and regulators to appeal to.  Further, Internet banking facilities are better and more secure.  If you lose money from your U.S. bank account through online fraud such as key loggers, trojans etc., your bank has to make you whole.

If you are a American Social Security pensioner, you can have your monthly pension check direct-deposited to a Philippine bank (more on that here) or to your U.S. bank.  If deposited to a Philippine bank, U.S. public pensions must be to an account in your name only — not a joint account with your wife.  If you are incapacitated it may be hard for your wife to access the funds.

–Philippine banks charge a monthly fee to receive each pension check of between $2.50 and $7.50, depending on the bank

–The government will not pay certain benefits to a foreign bank — for example the recent $250 economic stimulus checks that went to all Social Security recipients, except those with foreign addresses.

–In theory, funds in joint accounts in the Philippines are frozen when a spouse dies — until probate taxes are settled.  Every time you make a withdrawal you must certify that your spouse is still living subject to perjury penalties.  While this rule is often ignored, it still presents additional complications for the grieving spouse.  If the family funds are in a joint account at an American bank, your spouse will have access to the funds via ATM or check writing without such complications.

We’re not sure what estate taxes are like in the Philippines, but we’re guessing that for those that pay them they are higher than what you’d pay in America.  For example, in the Philippines we pay a 20% “withholding tax” on any interest income.  This is automatically deducted from your account when interest is paid.  There is no refund.  We fear Philippine estate taxes may be similar. Because of our very modest income and a progressive U.S. tax system, we essentially pay no tax on interest earned in the U.S.

However, we do very strongly suggest that you do have bank accounts in the Philippines to use for routine banking and living necessities and to provide readily available emergency funds.  We feel it’s unwise to be completely dependent on ATM machines or other electronic transfers from overseas accounts for all your money needs in the Philippines.   It’s essential that you have uninterruptible access to funds while living in the Philippines.  In the past, breaks in undersea fiber optic cables have severely disrupted Internet service in the Philippines.  Bigger, possibly total outages or other geopolitical or natural disasters (in an area subject to typhoons, earthquakes, volcanic eruptions, tsunamis, disease outbreaks) could cut you off from access to your overseas funds.  That would be just the wrong time to be without funds — funds for evacuation, medical care or ordinary living expenses.  The supply line is so fragile in the Philippines.  When typhoon Frank hit Iloilo City, the grocery store shelves were stripped bare in hours.  You must have funds available to take care of yourself and your family.

Further, medical care in the in the Philippines is strictly on a cash basis.  Some city hospitals will take credit cards, but most do not.  In case of the kinds of disruptions mentioned above, the credit card processing system might be down.  Just as in the U.S., your first stop will be the hospital billing office to pay for services before they are delivered. More payments will be mandatory if treatment is to be continued.  You’ll have to pay for drugs before they are administered.  Foreigners have been allowed to die for lack of a relatively minor amount of funds to pay for treatment.  While not exactly on point, see this story http://zinkhome.net/tomhunt/pdf/Front May 8.pdf to get a sense of what life in the Philippines is like without money for medical care.

We feel it’s ideal to have $10,000 in a Philippine bank as an emergency reserve and buffer.  Once you establish a relationship with a Philippine bank manager they will be anxious to assist you if you need access to your funds. You’ll likely have his or her home cellphone number.

So, now that we’ve recommended that you keep your funds and receive your pension deposits in your home country bank, how do you get access to the funds you need to live in the Philippines?  There are a variety of approaches.

International bank to bank wires.  This is a fast but expensive option, about $25 to $35 for each wire.  Be sure to wire from your U.S. dollar account to your U.S. dollar account in the Philippines.  If you allow the remitting bank to do the currency conversion to Philippine pesos, the process becomes even more expensive.  Wires can be good for major purchases such as autos or real estate.  There’s going to be security questions and procedures imposed by your home bank when you seek to have a large sum of money wired to the Philippines.  It’s best that you determine the wire transfer requirements from your bank while you’re still in your home country.  Citibank (U.S.) allows entirely online wire transfer requests.  For your first wire transfer, you’ll be asked to call the bank to confirm your identity but after that the wires can be done very easily online for $25 to any Philippine bank or $18.50 if to a Citibank branch in the Philippines.

ATM cards.  Some get the money they need by using ATM or debit cards from their home country bank.  This is fine for short stays, but increasingly U.S. banks are raising their fees.  It used to be that you could find banks that had no ATM fees and minimal foreign transaction fees.  That was true of Netbank before it went out of business.  It was true of Citibank if you used a Citi ATM machine in the Philippines.  Those days are mostly over. Fees have gone up and this can be an expensive way to get your money.  If you have a Philippine ATM machine dispensing only P5,000 or even P10,000 at a time and are charged a $ 3 to $5 fee for each withdrawal.  Further, if you are entirely dependent on this method, you are subject to some of the uncertainties mentioned above in terms of Internet problems and calamities.  Another tip: insist that your home country bank give you an ATM card, not a debit card.  What’s the difference?  The ATM card can only be used at an ATM machine.  The debit card with the Visa or Mastercard logo can be used to make purchases at stores with or without a PIN number.  A lost or stolen debit card can result in drained accounts even though the malefactor does not have the PIN number.  An ATM-only card is generally useless without a PIN number.

Pension direct deposit to Philippine banks. Retired Americans with government pensions can have their pension checks directly deposited to several Philippine banks.  This can be a good option for U.S. government pensioners.  For a full discussion including a list of participating banks see /social-security-direct-deposit-in-the-philippines/

Our recommendation. We do what lots of expats do.  We write an ordinary check from our U.S. checking account every month and deposit it to our joint U.S. dollar  account at our local Philippine bank.  The check is generally in the same amount which Social Security has direct deposited into my U.S. bank, although it can be more if we expect will have more expenses in the upcoming month. It can  take a month to clear, but there are NO fees of any kind from either the U.S. or Philippine bank.  (Before selecting a Philippine bank, be sure they don’t charge for foreign bank deposits.  Some do, some don’t.)  If you are able to establish a cash buffer as we have recommended, there really is no waiting to get money.  Just get into a regular rhythm of monthly deposits and you’ll always have the money you need.

We know that some live from month to month, but living in the Philippines without any cash buffer is just not prudent. If there is some major disruption (earthquakes, tsunamis, broken cables, worldwide flu pandemic etc.) you have to have money here or you are in deep trouble.  Stay in the U.S. work and save a little longer and come with at least $10,000 to get set up and allow for an emergency reserve.

Should you bank with an American or European bank in the Philippines? When we first moved to the Philippines, we felt that it would be best to do so.  So, we opened accounts at Citibank Savings in Iloilo — which has since closed.  There are really only two choices, Citibank and HSBC, both global banking goliaths.  HSBC has 10,000 offices in 85 countries. Citi operates in 140 countries with approximately 16,000 offices. Citi is the major foreign bank in the Philippines and HSBC a close second. No other American bank does retail business in the Philippines.  These banks only have offices in a few of the biggest Philippine cities.

Citi and HSBC have excellent cash machines.  Citi’s machines will dispense both pesos and dollars.  We used to get almost all our funds from Citi’s cash machine in Iloilo.  That’s because Citi did not charge any ATM or foreign transaction fees so we could use our Citi U.S. ATM card and withdraw just about everything we needed, up to our $2,500 daily limit per account.  Then in 2008 Citi imposed a 2% foreign currency fee for ATM withdrawals.  We have never used our Citi ATM card since.  We noticed that routine banking charges were high at Citi in the Philippines.  We also found that the advantages or interconnections leveraged by banking with in both Citi in the U.S. and in the Philippines were just about nil.  Although both parts of the same global banks, there were no useful interconnections. When we had to wire money from the Philippines to the U.S., we were charged $135.  It costs $18.50 to wire from Citi U.S. to Citi Philippines but $135.00 to do the opposite!  That’s when we decided to shop for another bank.

We went about it fairly systematically. We got rate and service fee cards or checked the web sites of the various banks in Iloilo.  We ended up feeling China Bank offered us the best deal — the lowest fees and best interest.  They were quite accommodating when we visited the branch.  We are quite satisfied with China Bank, which is by the way a Philippine Bank.  But really, the location and responsiveness of the banking staff are key.  Choose a bank which is close to you, has a big parking lot and which treats you well.  The mid-tier banks do seem to have lower fees than PNB and other big Philippine banks.  Be cautious about “rural banks”.  They seem to fail with regularity.  We don’t believe the Philippine Central Bank (BSP) will allow one of the commercial banks to fail and in fact they seem to have survived the current financial crisis quite intact.

Choosing a U.S. bank.  In general we have found Citibank U.S.’s Internet banking to be excellent.  Their competence at international banking is tops.  We once used a small local bank to wire a big (for me) sum overseas and they made a mistake and the money was lost for weeks.  That’s when We changed to Citibank.  Banking with Citibank can also be inexpensive if you don’t use their ATM/debit cards.  If you direct deposit your pension check there are no checking fees.  We pay nothing for our Citibank banking because we just use it to receive funds in the U.S. which we access via writing checks to our Philippine bank and for online bill pay services for purchases and expenses we have in the U.S.

The U.S. bank (also in the U.K.) that seems the most friendly to expats is Capital One.  We’ve had Capital One credit cards for years.  It’s one of a handful of banks which do not charge foreign transaction fees.  We use our Capital One Visa card for lots of routine purchases in the Philippines, including groceries.  Why?  The exchange rate is as good or better than we can get from a money changer.  The other reason is that it’s good to keep a card in play through fairly constant use.  If you never use you card and then need it for a medical emergency in the Philippines, you may find problems with getting approval.  The card is also good for purchases and bill paying in the U.S.  For some U.S. purchases a U.S. credit card is required.  For example if you want to buy Kindle content (see this article) you have to have a U.S. credit card. Capital One cards also have various award programs.  We just got $70 bank on my Capital One rewards card.  Of course, as with any credit card, you have to pay every month on time or you’ll get hit with horrible fees.  Capital One has started charging an annual fee of $20.  We hate paying such fees, but for this card it’s worth it.

Capital One also offers checking and savings accounts which do not charge an ATM or foreign transaction fees.  This is a link to an excellent compilation (Wiki) of the fees that various US banks charge for using their credit, debit and ATM cards overseas: Click here.

Here’s a New York Times article about U.S. citizens renouncing citizenship, in part because of the increasing difficulty of opening and maintaining U.S. bank accounts.

A few other tips:

• Be sure to do you research on banks and open accounts while still in your home country.  Due to security, terrorism and money laundering concerns it can be quite difficult to open an account in the U.S. from the Philippines.

• When making a major purchase, don’t carry big amounts of money on your person.  As noted earlier, bank employees have notified compatriots outside when a big withdrawal has left with a customer resulting in robbery and injury.  It only costs about P30 to purchase a “manager’s check” at your bank.  Or, if it’s a real estate transaction, have it close at your bank.

• Don’t assume that safe deposit boxes are safe.

• Don’t use public computers (Internet cafes, hotels) to access your bank accounts.

Further reading. If you’d like get all the inside scoop on the Philippine banking industry, I highly recommend Paul Hutchcroft’s “Booty Capitalism”, published by the Ateneo de Manila Press.   You can buy it from Amazon using this link.  If you do so you’ll help support goIloilo.com!
Buy this book from Amazon

I bought my copy at the excellent Pilipinas Heritage Library Bookstore at Ayala Triangle Park in Makati.  Last time I was there this book was not in stock.