BANKING IN SPAIN
The Banks in Spain are modern and well established. They all work under the close control of the Bank of Spain (Banco de España; www.bde.es), which has its central office in Madrid and branches in all provincial capitals.
Clearing Banks
As with banks world wide there has been many mergers and buy outs with the big Banks in Spain. At present there are three banking giants in Spain:
Other important banks in Spain include:
Foreign Banks
There are many foreign banks that operate in Spain, although they tend to be concentrated mainly in coastal resort areas and in the large cities.
British branches:
- Barclays Bank
- Royal Bank of Scotland (affiliated to the Santander bank)
- Halifax
- Abbey National
- Lloyds TBS
There are also some American banks like: Citibank and Chase Manhattan; German banks: Deutsche Bank (which has an agreement with the Spanish Post Office) and several Arab and Scandinavian banks.
Savings Banks
Savings banks (cajas de ahorro) are very common in Spain and apart from the Catalan La Caixa and Caja Madrid that are both present in most of the country, tend to be regional or provincial.
In Andalucía the main savings banks are Caja Rural, Caja Mar, Caja Sur and UniCaja (originally from Málaga province), La General (from Granada), Caja San Fernando (from Cádiz) and El Monte (from Seville and Cordoba). Savings banks, although popular, are considerably less so than the clearing banks.
There are also:
Internet Banking
Internet banking has taken off in a big way over recent years in Spain and more and more Spaniards are now using online services. Practically all banks offer Internet services and as long as you have a user name and password you can carry out most banking transactions online.
Opening an Account
Both residents and non-residents can open a bank account in Spain. You need to be over 18 and provide proof of identity such as a passport. If you are resident you’ll need to provide your residence card details. If you own property in Spain, the bank will probably also require your NIE (número de identificación de extranjeros), which all foreign property owners must have. Non residents can only have the current and savings accounts for non residents.
Standing orders (domiciliación)
You can order the bank to regularly pay certain bills like: local taxes, waste collection, electricity, water, phone etc.
You must make sure that you have sufficient funds to pay for such standing orders or you may arrive at your home to find essential services cut off for non payment (often requiring a reconnection fee!).
Do not expect to get anything free from the bank. Ask for their list of fees for various transactions (which must be approved by the Banco de España).
Saving Accounts
Saving accounts are generally different from current accounts in that they offer interest, although interest rates paid at present are very low (marginally higher than current account rates). With savings accounts you are issued with a cash book where all transactions are recorded. In some banks, you can use the cash book to withdraw money from cash machines. Savings accounts sometimes include the option of a debit card, but you can’t have a cheque book.
Investment Accounts
Long-term savings accounts and investment accounts are also available, although these generally have restrictions on the amount you can withdraw or penalties for withdrawing funds before term. Interest rates vary, although at present no standard savings accounts in Spain offer a good rate of interest.
The best rates are obtained from investment account linked to stocks and shares, although there are associated risks of loosing some or all of your investment.
ATMs
There are numerous ATMs in Spain and you can even find them in larger villages, although you should not count on this, especially in rural Spain. Spanish ATMs are very sophisticated and start by offering you a choice of language (usually English, French, German or Spanish). Instructions are easy to follow and self-explanatory.
Three ATM networks operate in Spain – 4B, ServiRed and 6000. You can generally use any ATM to access money from your account, although if the ATM you use is not one linked to your bank there may be high charges. Some banks allow you to make three withdrawals a month from ‘foreign’ ATMs before they charge you. Others are not so generous. Because of this, you may wish to consider opening a bank account with the bank owning your nearest or most convenient ATM.
As well as straight forward cash withdrawals, some ATMs allow you to carry out a wealth of other transactions, including paying cash into your account, consulting your balance or most recent transactions, renewing your mobile phone card or making theatre, cinema and sporting events reservations.
Offshore Banking
The offshore banking is designed to facilitate protection of wealth, hard-earned assets, as well as conducting business, in a confidential and private manner utilizing the advantages offered by offshore bank accounts.
An offshore bank is located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages including:
- strong privacy
- less restrictive legal regulation
- low or no taxation
- easy access to deposits
- protection against local political or financial instability.
It is wrong to think that offshore banking can legally prevent assets from being subject to personal income tax on interest (except some persons with good requirements) as the personal income tax of most countries makes no distinction between interest earned in local banks and those earned abroad.
European Savings Directive (ESD):
- From 1 July 2005 if you live in an EU member state then you are likely to be affected by the European Savings Directive (ESD), and any interest you receive from that date is likely to have tax withheld at source. Alternatively, you may continue to receive gross interest, but Offshore banks have to pass details about you and the interest you have received to the tax authority in the EU member state where you are resident.
- It is important to note that the ESD should only affect you if you are resident in an EU member state.
Offshore financial centres include:
Bahamas, Barbados, Bermuda, British Virgin Islands, Caymen Islands, Channel Islands (Jersey and Guernsey), Dominica, Gibraltar, Hong Kong, Isle of Man, Labuan – Malaysia, Liechtenstein, Malta, Montserrat, Nauru, Panama, Saint Kitts and Nevis, Singapore, Seychelles, Switzerland, Turks and Caicos Islands.
There are many ways of becoming involved in the world of offshore investment. You can initiate the relationship through a bank or choose to work with a building society, stock/investment broker or an IFA – Independent Financial Adviser.
Most of offshore jurisdictions offer no income, capital gains or inheritance tax for non-residents. Furthermore, any income generated is often paid net of tax by the institution you are dealing with.
Note that it is up to the investors to declare taxes due to their country of residence, and the legislation in that country may consider undeclared income as a criminal offence.
Advantages:
- Offshore banks provide access to politically and economically stable jurisdictions.
- Some offshore banks may operate with a lower cost base and can provide higher interest rates than the home country.
- Offshore finance is one of the few industries that geographically remote island nations can competitively engage in.
- Interest is generally paid by offshore banks without the deduction of tax.
- Some offshore banks offer banking services that may not be available in one’s country of residence.
Disadvantages:
- Few offshore jurisdictions have depositor compensation schemes, to bail out depositors in the event that a bank becomes insolvent.
- Offshore banking has been associated with money laundering and organized crime.
- The fees and minimum deposits required to open and operate account at some offshore banks can make them inaccessible to the general public.
- Offshore jurisdictions are often remote so physical access and access to information can be difficult.
Unit Linked Savings
A Unit-linked policy can be described as an insurance contract in which the savings benefits is linked directly to the value of units in a mutual fund or in a company’s own internal fund, where the investment risk is borne by the policy-holder.
Unit-linked policies offer a large number of attractive features to life insurers. Life insurers have found it increasingly difficult to deliver the returns that they had guaranteed on traditional policies. Unit-linked products allow them to shift the investment risk to the policyholder.
Investments in unit-linked products offer tax advantages in most European countries. Policies usually have to fulfil certain requirements, such as a minimum duration and death benefit, in order to qualify for their favourable tax status. In several countries capital gains and investment income which accrue during the life of the policy are tax-free. However, the benefits paid out are taxed as income (sometimes at a reduced tax rate).
How does it work?
- The policyholder pays a premium at the start of the month. This premium is split into two components: one is allocated to buy units on behalf of the policyholder; the other belongs to the life insurer and is paid into the non-linked fund.
- The mortality risk premium is financed out of the unit fund by cashing in units.
- At the end of the month, a return is paid on the units (unit growth) and a management fee charged on the unit fund before passed on to the life insurer to cover expenses.
- At the end of the month, interest is credited to the non-linked fund from which administrative expenses are paid out.
In the event of death or withdrawal, the amount invested in the unit fund is released and used to pay death claims and surrender benefits.
Private Banking
Private banking is a term which covers both of the services which banks give to individuals usually with liquid wealth of around 900,000 Euros (1 million American Dollars) and also the division of that entity which does checking, savings and loans for that clientele.
The word “private” is mostly a reference to minimizing taxes via careful allocations of assets.
Private banking usually combines trust services, investment services, banking services and tax services.
The largest private bank is Union Bank of Switzerland. |
