Open a Foreign Bank Account: FBAR, Form 8938, and PFIC Rules

A U.S. citizen or resident can open a foreign bank account by choosing a bank abroad, submitting identity and source-of-funds documents through its Know Your Customer process, passing a video or in-person verification, and wiring in the opening deposit. The account itself is legal. What trips people up is the reporting that follows: once your foreign balances cross $10,000 in aggregate at any point in the year, the federal government expects an annual FBAR, and willful failure to file carries an inflation-adjusted penalty of the greater of $165,353 or 50 percent of the account value.¹

Picking a Jurisdiction and Bank

Where you open the account shapes almost everything that follows: the deposit protection you get, the minimum balance you have to keep, the fees that come out each month, and whether you can manage the account remotely.

Deposit insurance is the first thing to check. U.S. bank deposits are covered by the FDIC up to $250,000 per depositor, per bank, per ownership category.² Foreign programs are inconsistent. Some countries offer comparable protection, others cap coverage far lower, and a few have no formal insurance scheme. Ask the bank directly what protection applies to your specific deposit before you commit.

Minimum deposits at foreign banks range from modest sums to six figures depending on the institution and the account type, with private banking and wealth accounts sitting at the top of the range. Non-resident accounts, which are designed for people who don’t live in the country where the bank operates, tend to carry higher maintenance fees or larger minimum balances because the bank does more compliance work on those files.

Read the fee schedule closely before you apply. Monthly maintenance charges, inbound and outbound wire fees, currency conversion markups, and dormancy fees on inactive accounts can quietly erode a balance. Multi-currency accounts and in-house investment platforms exist at some banks, but they add complexity and can trigger extra U.S. reporting.

Documents Banks Ask For

Foreign banks run Know Your Customer checks to verify identity and screen for financial crime. The exact list varies by institution, but most requests include:

A valid U.S. passport, usually required to remain valid for at least six months beyond your application date.
Proof of residential address, such as a utility bill, lease, or mortgage statement dated within the past 90 days. Some banks accept a domestic bank statement in place of a utility bill.
A bank reference letter from your current U.S. bank confirming how long you’ve held the account and that it has been in good standing. Not every bank asks for this, and obtaining one can take a week or more.
Source of wealth documentation. Pay stubs, business ownership records, property sale proceeds, inheritance papers, or investment statements. Banks want to see where the money came from, not just the balance.
A completed application form covering employment history, tax identification number, expected transaction volume, and the purpose of the account.

Cross-check every document before you submit. A mismatch between the name on your passport and the name on a utility bill, or an address that doesn’t line up across documents, will hold the file up.

Submitting the Application and Verifying Identity

Documents go in through the bank’s secure portal or by tracked international courier. Banks in countries that are parties to the Hague Apostille Convention often require your U.S. documents to carry an Apostille, a standardized certification that replaces the older legalization process and makes the documents legally recognized in the receiving country.³ State government fees for an Apostille typically run between $2 and $26, plus any notary charges.

After the paperwork is reviewed, expect a video call with a compliance officer. You’ll show your original ID on camera and answer questions about how you plan to use the account. Some banks in Switzerland, Hong Kong, and parts of the Caribbean still ask you to appear in person to sign signature cards, though the direction of travel is toward fully remote onboarding.

Approval times run from two weeks to two months depending on backlog and how deep the background checks go. Once you’re approved, the bank sends wiring instructions for the opening deposit.

Funding the Account

Most people fund a new foreign account by international wire from a U.S. bank. The costs of that transfer are worth understanding before you send.

Your U.S. bank charges an outgoing wire fee. The money often doesn’t travel directly to the foreign bank; it routes through one or more intermediary (correspondent) banks, each of which typically deducts $15 to $30 from the transfer. On top of that, the exchange rate applied to a currency conversion almost always includes a markup over the mid-market rate.

When you set up the wire, you choose a fee instruction that decides who absorbs those costs:

OUR: you pay all fees, including intermediary charges, and the recipient gets the full amount.
SHA (shared): you pay your bank’s outgoing fee, and the recipient absorbs intermediary and incoming fees.
BEN (beneficiary): the recipient pays all fees, which are deducted from the transfer before it arrives.

If you’re funding your own account and there’s a minimum balance to meet, OUR is usually worth the extra cost so the full deposit arrives.

Do Not Split the Transfer

Banks file a Currency Transaction Report on cash transactions over $10,000. Deliberately breaking a transfer into smaller pieces to stay under that threshold is called structuring, and it’s a separate federal offense whether or not the underlying money is legitimate.⁴ Send the money as a single transfer and let the bank file whatever reports the law requires.

Annual U.S. Reporting: FBAR and Form 8938

Holding a foreign bank account triggers annual filings with the U.S. government. Missing them is where account holders get into serious trouble, and the penalties are heavier than for most other tax obligations.

FBAR (FinCEN Form 114)

If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the calendar year, you file a Report of Foreign Bank and Financial Accounts.⁵ The threshold is aggregate. Three accounts holding $4,000 each cross it.

The FBAR is filed electronically through FinCEN’s BSA E-Filing System, separate from your tax return. The deadline is April 15, with an automatic extension to October 15 every year that you don’t have to request.⁶⁷⁸

Penalties for failing to file are severe. For penalties assessed on or after January 17, 2025, the inflation-adjusted maximum for a non-willful violation is $16,536. A willful violation carries the greater of $165,353 or 50 percent of the account balance at the time of the violation, applied per account, per year.¹⁹

Form 8938

Form 8938 is separate from the FBAR, and many account holders owe both. You attach Form 8938 to your income tax return if the total value of your specified foreign financial assets exceeds these thresholds:¹⁰

Unmarried, living in the U.S.: $50,000 on the last day of the tax year, or $75,000 at any time during the year.
Married filing jointly, living in the U.S.: $100,000 on the last day of the tax year, or $150,000 at any time.
Unmarried, living abroad: $200,000 on the last day of the tax year, or $300,000 at any time.
Married filing jointly, living abroad: $400,000 on the last day of the tax year, or $600,000 at any time.

Form 8938 reaches a broader set of assets than the FBAR, including foreign stocks, partnership interests, and financial instruments held outside a bank account. Filing one does not excuse you from filing the other.¹¹

Tax on Interest and the PFIC Trap

Interest earned in a foreign bank account is taxable in the United States the same as interest from a domestic bank. Report it on Schedule B of Form 1040, and use Part III of that schedule to disclose the existence of your foreign accounts and the countries where they sit.¹² Foreign interest is taxed at your ordinary federal rate.

If the foreign country withholds tax on your interest, you may be able to claim a foreign tax credit on your U.S. return to avoid double taxation. If total creditable foreign taxes are $300 or less ($600 for married filing jointly) and all the income is passive, you can claim the credit directly without filing Form 1116; above those amounts, Form 1116 is required.¹³

One warning about foreign investment products. If your foreign bank offers mutual funds or pooled investment vehicles and you buy them, they almost always qualify as Passive Foreign Investment Companies. A foreign corporation is a PFIC if 75 percent or more of its gross income is passive or if at least 50 percent of its assets produce passive income, and most foreign mutual funds clear both bars.¹⁴ The tax treatment is punitive: excess distributions and gains on sale are allocated across your holding period, the portions assigned to prior years are taxed at the highest rate in effect for each of those years, and an interest charge is added from the original due date of each year’s return. You also file a separate Form 8621 for each PFIC you hold.¹⁵ The practical rule: don’t buy foreign mutual funds through your foreign account unless you accept the PFIC reporting burden and tax cost.

Foreign Gifts Flowing Into the Account

If you receive a gift or inheritance from a non-U.S. person and it lands in your foreign account, there’s an extra filing. When gifts or bequests from a single foreign individual or foreign estate exceed $100,000 in a tax year, you report them on Part IV of Form 3520, and you separately identify each gift over $5,000 within that total.¹⁶

Gifts from foreign corporations or foreign partnerships have a lower, inflation-adjusted threshold. For 2024 it was $19,570; the 2026 figure is approximately $20,500. These gifts aren’t income to you, but skipping the Form 3520 filing triggers a penalty of 5 percent of the unreported amount for each month the form is late, up to 25 percent. The obligation applies whether the money went into a foreign or a domestic account.¹⁶

Maintaining and Closing the Account

Once the account is open, the work is staying current. Calendar the FBAR deadline (April 15, automatic extension to October 15), your tax return date for Form 8938, and any bank-specific requirements like minimum balance reviews or periodic re-verification. Foreign banks often refresh customer files under their own compliance programs, so expect occasional requests for an updated passport, proof of address, or source-of-funds documents.

Closing the account mid-year doesn’t erase that year’s filings. If the balance crossed $10,000 at any point before closure, you still owe an FBAR for the calendar year, and any interest earned before closing still goes on your tax return.⁵ The reporting year follows the calendar, not the life of the account.

1
eCFR. Title 31 CFR 1010.821 Penalty Adjustment and Table
2
Federal Deposit Insurance Corporation. Deposit Insurance FAQs
3
HCCH. Apostille Section
4
Office of the Law Revision Counsel. United States Code Title 31 – 5324 Structuring Transactions to Evade Reporting Requirement Prohibited
5
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
6
Financial Crimes Enforcement Network. Due Date for FBARs
7
Financial Crimes Enforcement Network. Reporting Maximum Account Value
8
U.S. Treasury Fiscal Data. Treasury Reporting Rates of Exchange
9
Office of the Law Revision Counsel. United States Code Title 31 – 5321 Civil Penalties
10
Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
11
Internal Revenue Service. Instructions for Form 8938 – Statement of Specified Foreign Financial Assets
12
Internal Revenue Service. Reporting Foreign Income and Filing a Tax Return When Living Abroad
13
Internal Revenue Service. Instructions for Form 1116 (2025)
14
Internal Revenue Service. Instructions for Form 8621
15
Internal Revenue Service. Instructions for Form 8621 (12/2025)
16
Internal Revenue Service. Gifts From Foreign Person