Martin
This was written some two months ago for some people interested in opening bank accounts over here so it might be helpful to you. It is NOT Gospel (what IS in this lovely country?) but it should give you ideas of what is available. If you want further information, please do contact me direct by my e-mail above. - Grahame
.... Please forgive me if this e-mail appears to be a little staid & not my usual "chatty" style of response. The response I have received from my comments in reply to the gentleman on DR1, has been enormous. As a result, I have had to compose a form of standard reply to them all. I am fully aware that everyone's needs differ so if you should need a follow up at some stage, I promise to be more specific to your 'individual' needs.
As with most other countries, there are several forms of Bank Accounts in the Dominican Republic - They are as follows:
Standard Peso (RD $) Deposit Accounts with 'pay in' & 'withdrawal' facilities. The Banks pay interest rates for these standard RD $ deposit accounts of around 5% p.a. These accounts are where you put money in when you want to & withdraw from same as you need to. There is no minimum period of time that money has to be in the account before you are allowed to withdraw it but the minimum level should be kept at above RD $500.
Bank Checking accounts.
People requiring checking facilities have to deposit RD $1,000 or more with the bank they choose & maintain a credit balance. If a debit balance is required, always get permission of the bank to do so first (it is a criminal offence to pass a check that can not be met here & you can be put into the local jail until things get sorted out!!). Interest rates on monies borrowed from the Bank are extremely high (around 24% - 30% p,a, at the moment) so avoid this like the plague!! If you keep a credit balance (of above RD $1,000 with most banks) you will not be charged bank charges, but there is NO interest paid on these accounts.
Bank "Certificados" - (also known as CD's, 30 day Certificates, High Interest Rate deposit accounts). - DR PESOS!!
As the name suggests, these are where you make deposits to the bank of your choice for a minimum 30 (sometimes 90) day period. Interest is paid by the bank on the amount deposited (normally a minimum of RD $100,000 - US $6,000) at a rate of between 10% & 12% p.a. depending on bank & length of minimum deposit period. Once the minimum period has passed, the deposit you made, plus the interest that accrues each month, continues to attract interest at the current applicable rate (it can vary according to demand & supply available &/or Government / Central Bank decree) which will normally be in excess of 9 or 10% p.a. You must give 30 days notice for withdrawals from this form of account AND the withdrawal can only be made in pesos!!
Bank "Certificados" - (also known as CD's, 30 day Certificates, High Interest Rate deposit accounts). - US Dollar.
As above except that the interest rate is lower - around 7% - 8% p.a. Again, rates can - & DO - alter after the initial contracted period has elapsed, according to supply & demand &/or Government intervention as mentioned above.
Standard US Dollar deposit account.
As with the Pesos deposit account but paying a slightly lower interest return (normally around 2.75% - 3% p.a.) You need a minimum of US $500 to start the account & you must retain a credit balance of US $100 at all times. You must give at least 3 days notice if you wish to withdraw more than US $500 from your account as the dollars have to be requisitioned from the Central Bank!! The use of this form of account is for wire transfers IN of US dollars (or other foreign currencies that will be converted into US Dollars) & YOU determine 'where' & 'when' you want to change these dollars into Pesos (thereby getting a better rate of exchange!!).
The alternative investment areas are numerous but I have limited myself to two SAFE areas!! One is a Finance House, the other is a lawyer I have known & trusted for nearly 8 years.
Finance Houses.
This sort of operation borrows money from investors (You & me) & lends out to borrowers who
a) can't get a bank loan,
b) don?t want to wait for the bank loan to go through or
c) have got agreement from the bank for a loan but need a short term loan to get started on their expansion/new acquisition.
ALL borrowers have to have collateral / guarantees of at least 1.5 times the amount borrowed (normally it is twice the value of the loan amount) & generally have excellent references. Interest rates charged to borrower is generally in excess of 30% - 36% p.a. & in some cases goes as high as 48% p.a. (I have known cases of 60% p.a. where the collateral was good but the references were NOT so good!!).
The investor receives a return of 18% p.a. or 1.5% p.m. which can be taken as a monthly income or left to compound, depending on the investor's needs/desires. A 'Certificate' (similar to that issued by the banks) is drawn up to produce a Contract between the two parties. Normally the period of the loan by the investor is for 12 months, but alternatives can be arranged by consent between the parties. When we were arranging to build our house, we took a loan from England (at a rate of 7.8% p.a.) & invested with the finance house taking part of it after 3 months, some more after 4 months, 5 months & the balance at the 6 month period, as we needed it to pay the builder!! This format paid for a few extras into the house - like our fitted kitchen!!
Once the contracted investment period is over, the investment can continue without a new contract being drawn up, if the investor so desires. If the investor then decides that he/she needs the money out, then a 30 day period of notice is generally required by the Finance House. Investments can be made in RD Pesos, British Sterling or US Dollars as required by the investor but any monthly interest payments made by the Finance House to the investor, are normally calculated & paid out in RD pesos. If the capital amount (plus any compounded interest due) is to be repaid to the investor in currencies different to RD Pesos, the rate of exchange applicable at that stage shall be the one applied to the conversion rate. (God, .... that sounds very legal & clinical!!! However, I think it is the only way to best describe the conversion system used!).
The Finance houses look for a minimum investment of US $5,000 (RD $80,000) when they pay out at 1.5% p.m. (18% p.a.) but some will accept smaller amounts (US $1,000) for a smaller return of 15% p.a..
I will not at this stage try to describe the deal we have with the Lawyer as this is a very personal deal & only comes up every 4 or five months as she gets clients. Suffice to say that we get 4% PER MONTH, she is EXTREMELY honest & reliable & we are very happy to do business with her. Similar deals may come up in the future & if you live here, you may well find your own - better - finance deals as you grow more confident of the economic climate & people who wish to borrow money at very high interest rates.
Let me conclude by making one or two observations.
There is NO income tax payable to the Dominican Taxation system on investments. If your country of origin dictates that you should declare ALL income you derive from anywhere in the world (i.e. The U.S.A.) then it is your responsibility at the moment to advise the IRS. If you choose not to advise the IRS, be careful with the banks when investing. Some Banks are giving, others are considering giving, information to the IRS re depositors they have & the sort of investment capital these depositors have. As a result, the IRS MAY question you as to your investment income at some stage if you do not declare it. You need to check this point very carefully with the bank that you choose IF you decide not to declare your investment income!!
Finance Houses are NOT obliged to pass such information on to the IRS. Should they be approached by the IRS, I am confident that they will either bin the offending request or alternatively suggest the IRS check elsewhere for this information.
Suggestions from various sources indicate that investing outside of the banking fraternity in this country is unwise & unsafe. This just is not the case ? in fact, as the Finance House is run very much as a profit making operation & generally owned by the person running the company, they are perhaps safer than the banks. Certainly the Finance House that we deal with has been operating for at least 10 years & has made a significant profit each of those years ? I have checked!!
There are other comments going round about the devaluation of the DR pesos. Yes, this is true. There has been ?talk? over the last two weeks that maybe the pesos should be floated on to the international money market & cojmence trading at the RD 20 = US $1 level. NOTHING is firm at this stage, it is only hearsay & rumour (something this country is VERY good at). However, the pesos has been stable for the last 10 years & I have confidence that should it be revalued at RD $20 ? US $1, then it will remain static for some time to come. When I first came here in 1991, the pesos was RD $12.75 to the US dollar so in 10 years it has declined in value against the dollar by just 4 pesos. This, I would suggest, is a lot healthier than some European currencies!! If I lived outside this country & needed US dollars rather than pesos, I would be quite happy to convert my pesos to US dollars at the end of the contract period & lose the 1 or 2 pesos per dollar exchange rate difference, knowing that I had accumulated a MUCH higher rate of return on my investment during that period. i.e. I would have gained over the US investment market rate!!
I hope this information is what you were looking for & that it is of help to you in determining where you go from here. If you want further information from me, please do get back in touch. I CAN recommend the Finance House we deal with, I CAN recommend Banco Mercantil whom we bank with & if you want/need introductions to them, I will be pleased to help where I can. Mention my name to them if you feel you prefer to go direct, I have introduced quite a few people to both, so my name is pretty good with them.
Best regards ? Grahame Bush.
