How to open a US brokerage account?
Opening a US brokerage account in Trinidad and Tobago is easy.
Generally, you'll need to provide:
- Two forms of identification (driver's licence, passport, national ID)
- Proof of address (utility bill, tax assessment, bank statement, lease agreement)
- Source of funds (usually a written statement explaining where your USD originated from)
The types of information required will vary depending on the brokerage.
Read more for information on recommended brokerage accounts, and things to watch out for.
Recommended brokerage accounts
You can view the list of recommended brokerage accounts below.
We also recommend viewing the terms directly to get a full understanding of all of the fees involved, e.g. purchasing/selling stocks, transferring money in/out, account inactivity fees etc.
Interactive Brokers
You can sign up for an Interactive Brokers account here.
Interactive Brokers is a registered broker-dealer with the Securities and Exchange Commission (SEC), a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).
Interactive Brokers offers the ability to purchase stocks and ETFs across a wide range of exchanges in the US, Europe, and Asia.
Unlike many other brokers, there are fees for purchasing and selling stocks and ETFs, and fees for purchasing treasury bills.
These fees are usually small (under $5 USD per order), but it's something you'll want to keep in mind if you're going to be doing a lot of trading.
Interactive Brokers does not offer a debit card with their brokerage account.
Interactive Brokers also has no fees for account inactivity.
Lime Trading
You can sign up for a Lime Trading brokerage account here.
Lime Trading Corp is a registered broker-dealer with the Securities and Exchange Commission (SEC), an investment adviser registered with the SEC, a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).
Lime has zero fees for buying/selling stocks and ETFs if using smart routing execution.
Lime has an inactivity fee of $15 USD per quarter which can be avoided if you have at least 5 trade executions in the account per calendar quarter, or $25,000 in the account.
Lime does not offer a debit card with their brokerage account.
Lime does not offer the ability to purchase treasury bills.
Unlike Interactive Brokers, Lime does not offer the ability to trade on non-US exchanges.
Charles Schwab
You can sign up for a Charles Schwab brokerage account here.
Charles Schwab is a registered broker-dealer with the Securities and Exchange Commission (SEC), an investment adviser registered with the SEC, a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).
Schwab has a minimum account opening balance of $25,000 USD.
Schwab offers a comparatively low interest rate on uninvested cash of 0.45%.
While disappointing, you can purchase US treasury bills to get a much better interest rate.
The interest rate from treasury bills is guaranteed to be better for two reasons:
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It's very unlikely that any brokerage will offer the same interest as a new treasury bill, because they profit off of the difference.
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As a Trinidad and Tobago resident, you're subject to withholding tax of 30% on the interest earned on uninvested cash in a brokerage account. There is no such tax on treasury bills.
Last but not least, with Schwab you have the ability to get a US debit card.
This means that you can use the debit card to access your uninvested cash.
So if you've tied up cash in stocks, ETFs and treasury bills, it will not be available to spend from your debit card.
You can withdraw cash at any ATM, or you can also use it for online purchases.
Schwab also reimburses all ATM fees, as long as you decline currency conversion if offered by the ATM.
Keep in mind that it's not recommended to use your debit card just anywhere, as you won't get the same protection as a credit card.
Schwab has no fees on purchasing or selling stocks and ETFs (small SEC fees still apply), or purchasing treasury bills.
Schwab also has no fees for account inactivity.
Unlike Interactive Brokers, Schwab does not offer the ability to trade on non-US exchanges for individuals in Trinidad and Tobago.
Are my funds safe in a US brokerage account?
As long as the broker-dealer is a member of the Securities Investor Protection Corporation (SIPC), yes!
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 transfer funds to my brokerage account?
If you have a local US bank account, you'll need to do a wire transfer.
Regardless of which brokerage account you choose, you should see a section with wire transfer instructions listed.
If you have a Wise (formerly known as TransferWise) account with a USD balance, you could transfer funds via ACH if your brokerage account supports it.
Are there any caveats of holding my funds in a US brokerage account?
As the saying goes, there is no free lunch. This is certainly no different.
While the risks are limited to most individuals, you'll want to read further and understand all of the potential issues involved.
Estate Tax
As a non-resident of the USA, you'll be subject to estate tax of 40% above the threshold of $60,000 USD.
This applies to all US situs assets.
Any asset that has a situs in the United States constitutes a US-situated asset.
An easy example is owning shares of Apple Inc ($AAPL), which is a domestic US Corporation.
There are certain countries who have estate tax treaties with the US which provides more favorable rules regarding taxation.
Unfortunately, Trinidad and Tobago is not one of those countries.
There are certain classes of assets excluded from estate tax including US treasury bills and corporate bonds of US publicly traded companies.
Uninvested cash in your brokerage account is still liable for estate tax, so you'll want to transfer those funds out if you're above the $60,000 limit.
With a little bit of careful planning, you could potentially avoid the estate tax even if you're invested in US situs assets.
This would involve liquidating all of your holdings and transferring the cash prior to your death.
Of course, you still run the risk of not being able to tell exactly when you'll die.
If you're concerned about this, the only reasonable recommendation is to keep less than $60,000 invested in US situs assets.
With Interactive Brokers, you can invest in a US S&P 500 ETF that's domiciled in Ireland that trades on the London Stock Exchange (LSE), called CSPX.
For high net worth individuals, opening a trust is also a way around estate tax.
Withholding Tax
As mentioned above, you're subject to withholding tax of 30% on the interest earned on uninvested cash in a brokerage account.
This also applies to dividends.
If you're investing in stocks or ETFs that pay out a dividend, you'll automatically lose 30% of it.
The traditional way to mitigate this is to invest in Ireland domiciled ETFs, where you'll only pay 15%.
The only way to do this is to use Interactive Brokers, also known as IBKR.
As mentioned above, IBKR charges fees for purchases of stocks and ETFs, but these fees are likely to be less than the withholding tax incurred.
Irish domiciled ETFs are typically listed on the London Stock Exchange.
IBKR fees would involve 0.05% of trade value, or USD $4.00 per order if you purchased a USD denominated Irish domiciled ETF on the London Stock Exchange.
Disclaimer
Information provided here is for general information purposes only and does not constitute accounting, legal, tax, or other professional advice.
Visitors should not act upon the content or information found here without first seeking appropriate advice from an accountant, financial planner, lawyer or other professional.