How to open a local US bank account?

Opening a local US bank account is just as easy as opening a standard bank account in Trinidad and Tobago.

You'll need to provide:

• Two forms of identification (driver's licence, passport, national ID)
• Proof of address (utility bill, tax assessment, bank statement, rental contract from landlord)
• Proof of employment (job letter)

In most cases, you'll also be asked about source of funds for the US Dollars that you'll be depositing or receiving via wire transfer.

If you're interested in opening a bank account without going into a branch in person, you can open account online with Republic Bank here.

Should you open a US bank account in Trinidad and Tobago?

The answer is yes, but you probably shouldn't keep most of your funds here if you can avoid it.

Interest rates on foreign currency deposits in Trinidad and Tobago are very low (around 0.01%), and will likely remain that way.

At the time of writing, interest rates in the USA on savings accounts are as high as 5.50%.

A common strategy by banks is to offer fixed deposits for USD, where you can earn up to 4%.

You get nothing for free in life of course -- so you lose out on an additional 1.5%, and you're locked into a fixed deposit.

Locking yourself into a fixed deposit might not sound too bad, but closing it early means you'll likely lose most or all of the interest earned to date.

To make matters worse, the Deposit Insurance Corporation (DIC) of Trinidad and Tobago does not insure foreign currency accounts.

Does this mean that your funds are at risk?

The likelihood of a bank failure is low, but why take the risk and keep most of your USD here?

Read more below for alternatives.

What's the alternative?

Opening a bank account in the USA might sound tempting, but it's inconvenient at best.

It is possible to open a bank account in the USA where you can earn interest, but this requires you to go in person, have a US address where you can receive mail, and provide proof of identification (passport) and address.

Even if opened, people around the world have reported that their accounts were closed because they aren't physically present in the US.

Accounts opened by non-residents pose a higher risk to banks, and it usually is not worth it to them to keep these accounts open.

It might sound hopeless, but the best alternative is a brokerage account.

Click here for a guide on how to open a brokerage account.

With a brokerage account, you'll be able to get similar interest rates as US bank accounts, with the added security of Securities Investor Protection Corporation (SIPC) insurance.

You might have heard of Federal Deposit Insurance Corporation (FDIC) insurance, which is similar to deposit insurance in Trinidad and Tobago and applies to bank accounts.

SIPC insurance is different. SIPC protects customers of SIPC-member broker-dealers if the firm fails financially.

SIPC insurance covers investors for up to $500,000 in securities (financial instruments that can be bought, sold and traded, e.g. stocks and bonds) and up to $250,000 in cash.

It's important to note the fundamental difference between how funds are treated between banks and brokerage firms.

Banks engage in fractional reserve banking. This is a system where banks keep a portion of their customers' deposits in reserves, and use the remaining funds for loans and investments.

Brokerages are required to segregate customer funds.

SIPC insurance is designed to protect against a brokerage firm from unauthorized use of your funds.

It's not intended to protect you from bad investments, for example if you purchased stocks that declined in value.

How can I earn interest with a brokerage account?

Interactive Brokers offers a good interest rate on uninvested cash balances at 4.83%.

Alternatively, you can earn more by purchasing a US treasury bill.

A treasury bill is a short-term government debt obligation backed by the US Treasury department.

The US government regularly holds treasury bill auctions where you can purchase treasury bills for different durations, ranging from 4 to 52 weeks.

Treasury bills are virtually risk-free.

The US government can always print the money to pay back their debt, so there is virtually no risk of the US government defaulting on its debt.

If you sell a treasury bill prior to maturity, you could lose money depending on the time of sale.

Treasury bills are sold at a discount below their face value, and you profit from the difference when the bill matures.

It isn't possible to purchase treasury bills directly from the US government using Treasury Direct, as you'll need to have a social security number (SSN) to do so.

Instead, you'll have to purchase treasury bills using a brokerage account.

You can do this with either Interactive Brokers or Charles Schwab.