Does FDIC Apply to Nonresidents?
Does FDIC Apply to Nonresidents: FDIC is one Reason Nonresident Aliens Invest in the United States: When a U.S. Citizen or Long-Term Resident formally expatriates from the United States and is no longer a US Person, there is an immediate sense of tax relief. The taxpayer is no longer considered a US Person Taxpayer and therefore does not generally have to file U.S. Tax returns each year to report their worldwide income — rather, they report their US sourced income on a form 1040NR, if required. But after the initial euphoria wears off, many expatriates miss one important aspect of investing money into the US banking system – FDIC protection (Federal Deposit Insurance corporation). Not many countries offer their customers FDIC equivalent protection or guarantee on their deposits. So, what happens if a former US person turned expatriate wants to invest in accounts such as CDs or Savings Accounts (when the interest rates go back up) as a nonresident alien?
What is FDIC for Nonresidents
FDIC refers to Federal Deposit Insurance Corporation. The purpose of FDIC is so that deposits made into certain “FDIC Insured accounts” are guaranteed up to a certain amount — normally $250,000 per person per account, per institution. Thus, if a person wants to open up several bank accounts at different institutions, then they can normally lock in a $250,000 guarantee on that money — so that if anything was to happen — that portion of the deposit would be guaranteed. Most foreign countries unfortunately do not have as stable (most of the time) government — and do not offer this type of guarantee. Of course, not all types of accounts are guaranteed — it is primarily bank accounts and sometimes CDs offered at banks and certain other financial institutions.
Do Nonresidents Qualify for FDIC?
Yes. As provided by the FDIC website:
What is the FDIC?
“The FDIC—short for the Federal Deposit Insurance Corporation—is an independent agency of the United States government. The FDIC protects depositors of insured banks located in the United States against the loss of their deposits if an insured bank fails.
Any person or entity can have FDIC insurance coverage in an insured bank. A person does not have to be a U.S. citizen or resident to have his or her deposits insured by the FDIC.
FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC began operations in 1934, no depositor has ever lost a penny of FDIC-insured deposits.”
Interest Income for Nonresidents Generated on Bank Accounts
The tax rules are different for residents vs. nonresident aliens. While US persons are taxed on their worldwide income — including income generated from bank accounts — foreign national nonresidents are typically exempt from U.S. tax on interest generated from US accounts (there are some exceptions and limitations). Therefore, if a former US Person wants to invest in the United States and open a US-based bank account, not only should there be no problem doing so — but the interest income will not be taxed by the US Government, and many foreign countries exempt that type of income from income tax. Therefore, for expatriates investing into the United States in a savings account or possibly CD that generates some interest, not only will their money be secure — but the interest income may escape tax.
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