Outstanding Bank Interest Rates in Costa Rica
Investments in Colones at Banco Nacional (BNCR)
Would you like to earn an outstanding interest rate while profiting from the continued devaluation of the United States Dollar? Rates for one-year certificates of deposit at the Banco Nacional and Banco de Costa Rica have surpassed 10 percent in Costa Rican Colones (CRC), and top 2.5 percent for deposits U.S. Dollars (USD). The return is a far cry from the anemic 1 percent returns on stateside bank deposits.
The chances of losing in currency exchange in Costa Rica are extremely remote, given that exchange rates have remained very stable for almost three years. During this time, the Costa Rica central bank (BCCR) has been buying U.S. dollars to the tune of hundreds of millions, hoping to prop up the dollar and keep inflation in check.
Behind the continued strength of the Colon is the army of multinational corporations, investing vast sums of money on direct capital investment and making payroll for their Costa Rica operations.
U.S. Multinationals in Costa Rica
Intel Capital (Intel Corporation)
Components Intel S.A.
Sykes Enterprises
International Business Machines (IBM)
Baxter
Baxter Americas
Proctor and Gamble (P&G)
Hewlett Packard (HP)
Western Union
Boston Scientific
Emerson
Allergan
Hologic
Intel for example, has a multi-billion dollar, 52 hectárea microchip fabrication facility (or fab) in Ribera de Belén. In addition to manufacturing, they also have an office campus in la Aurora de Heredia, which provides outsourced professional services for its worldwide operations. These investments require vast injections of dollars to maintain, and the effect on Costa Rica, a relatively small nation of less than 5 million people is readily apparent in the financial system.
So much, that every year in late November the U.S. Dollar takes a precipitous drop in Costa Rica as the multinationals inject dollars into the country to pay the annual Christmas bonus or aguinaldo, equal to 1/12 of annual salaries, or “extra month” of pay. The effect is so strong that the central bank has serious difficulty keeping the ailing dollar stable in the currency market.
A 6-12 month investment in a Colones denominated bank certificate of deposit is unlikely to come with much risk, especially for those who have been earning the 9 to 10 percent return for years, and bringing their money back to dollars. Even thirty day sight deposits in Colones are earning 4.85 percent annually. Expats who have U.S. pension income and local expenses in Costa Rica should consider the investment as a hedge against future losses in dollar devaluation.
The system for making deposits can now be done totally online, for those who have bank accounts in colones at the Banco Nacional (BN). Rates are available online, and the system provides an at a glance summary of positions. The option is also a safer alternative to keeping large deposits in savings and checking accounts, which are linked to debit cards. At the very least the loss of debit card does not expose the user to much risk, because the certificates of deposit are not available for charging.
While the Banco Nacional does not issue 1099-INT tax forms, U.S. persons are still required to pay income tax on their worldwide interest earnings. Costa Ricans with no U.S. entanglements get away tax free on this kind of income. Also, there is a small tax in Costa Rica for bank investments not denominated in Colones, which makes U.S. Dollar investments even less desirable.
Foreigners who are not legal residents of Costa Rica can no longer open accounts here. U.S. taxpayers can thank a jealous U.S. foreign policy, desperate to contain investors in the domestic markets. Banking or investing abroad, even for tax paying Americans has become notoriously complex. Legal residents of Costa Rica, however are welcome to open an account.
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Filed Under: Expat Living • Featured
Thanks so much for this. I have been afraid to dip my toe into a system that operates outside of my native tongue but the dropping dollar is almost forcing my hand, or foot. I will of course, research this more before acting but thank you for putting this out for me to consider.
When did they change the law about non-residents opening a bank account?
Technically you do not have to be a resident, but in order to make interbank transfers within Costa Rica (SINPE) the law requires a DIMIX card and SUGEF identification number for accounts held by foreign persons. Existing account holders are being told they either need to get a cedula, or they can not make transfers to accounts in other banks. I imagine trying to open a new account without a cedula is very difficult if not impossible without legal help.
Can you open a self directed IRA with BN to avoid paying US income tax on the interest and gains? I would love to just roll over mine from the US but I am betting things don’t work internationally.
This is a great idea. I know someone who did something like it with a brokerage firm in the U.S. Sorry, I do not have the details, however you might shop around because there are administrative fees involved.
Erin, I believe the change took place in September or this month. It is a recent change.
I’m thinking of moving to CR (my wife is a Tica), and placing my savings in precisely such certificates as an investment and source of income. What I can’t get a handle on are the local tax implications, and in trying to find out my friend Google lead me to your blog here.
My wife agrees with you that interest income on a fixed-term deposit with one of the public banks is tax-free, but I can’t confirm that to my satisfaction. Various sites I’ve found seem to talk of a 15% withholding fee applied to interest income, and having interest income included in your calculation of personal income tax. I’m not American, so I don’t have to worry about the IRS, I’d just have to deal with Tico authorities.