Differences between Panama and European Bank Accounts
Many clients moving to Panama want to start taking their first steps in the Panamanian banking system, and they always ask me the same questions. It is for this reason that on this occasion I want to talk about banking products in Panama. The Panamanian banking system does not resemble the South American banking system, nor does it resemble or copy the European banking system nor that of the United States. In Panama we are used to take the best of each country and then make our own version. Over the years Panama created its own banking system which I want to explain in general today.
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What is a Savings Account in Panama?
In Europe banks are not paying interests for keeping our money with them. If we remember well a bank lives by using other people's money and makes money that way. There are many ways how the bank can make money from other people's money, but we are not going to talk about that subject this time. When we say that we want a savings account in Panama, it is not the same as a savings account in Germany, nor is it the same as a checking or commercial account.
That is to say, the savings account in Panama can be opened by any person, but it does not mean literally that it will be used exclusively to save up money. For the Panamanian banking system you can manage the savings account as you see fit. That is to say, you can use it to receive your salary, to pay the expenses of your household and you can even give the account a commercial use, in case you are an independent entrepreneur or freelancer. It is important to mention that banks in Panama do not distinguish between accounts that are being used for savings, for personal use, or even commercially. It is even possible for a corporation to open a savings account.
The bank will pay you interests on your Panamanian savings account. These interests are calculated per year and are paid monthly at the closing date of each month. In Panama, bank accounts are not restricted or limited to a number of monthly transactions, as it is the case with certain banks in the United States where they tell you that you can issue transfers or move your money from one place to another only for a certain number of times. In Panama there is no limit, I can wire as many times as I want from the bank account and I am not charged for it. There will be charges made by the bank for the handling, that is, if I send money abroad from Panama or receive money from abroad into my Panama account. There are also fraud insurances that are basically deducted on a monthly basis, but they are no banking fees charged for the bank account to exist. If you want to withdraw money from your bank account in Panama using your ATM card (tarjeta clave) it is recommended that you use an ATM of the bank where you have your account. Otherwise, banks usually charge a small fee for the use of the ATM.
In Europe there are still banks that offer savings passbooks, which are exclusively for personal savings. This modality existed in Panama, but was discontinued. Perhaps a reference of this can be found in the state bank called Caja de Ahorros de Panama.
Bank interests are not taxable in Panama
In Panama the updated Tax Code states that interests recognized or paid on savings, fixed-term deposits or any other type of account held in banking institutions physically established in the Republic of Panama, whether they are local or foreign deposits, will not be subject to income tax in Panama, according to the definition provided in article two of Cabinet Decree 238 of 1970.
What is the difference between a Savings Account and a Checking Account in Panama?
A savings account pays interests, but a checking account does not pay interests. A checking account is entitled to a check book, which will be charged separately by most banks. This type of account exists practically for doing business or execute commercial activities.
The conditions to open a savings account in Panama reduce the initial deposit amount, as it is a savings account, but when it is a checking account the initial deposit is higher. This initial deposit cannot be withdrawn and must always be kept as a minimum monthly balance of the checking account. Otherwise the bank will penalize you.
What types of cards exist in Panama?
The three most common types of cards issued by banks in Panama are: ATM cards, debit cards (with Visa or MasterCard logo, etc.) and credit cards.
ATM cards are exclusively connected to a savings account. This type of card only works in Panama and the bank handling fees are very low. This card usually has no name, some have numbers, some do not have much information, this is normal. They can be used to withdraw money at any ATM nationwide or to pay in supermarkets or stores by using a PIN number.
Debit cards with Visa, MasterCard or other logos basically work like a prepaid credit card, i.e. you pay with your own deposited money, but without entering a PIN code, but like a credit card; However, the card has no credit line. If the bank account that is connected to this debit card does not have sufficient funds, the card will be rejected.
Credit Cards in Panama
Credit cards in Panama works like the credit cards in the United States, this means, the bank opens a credit line for a specific amount depending on your income. The bank will lend you that money and with that money you pay with the card. The money the bank lends you is not connected to your savings or checking account. The bank will give you 30 days to pay back the money. In the practice the bank will give you the opportunity to pay back the amount well before the 30 days, but they will not tell you until the end of the month. Then the bank can charge you a monthly interest for the money you borrowed.
Mismanagement of a credit card can create indebtedness. If you pay the full amount spent on the card before the closing date, you owe the bank nothing. If you don't, you must make at least the minimum monthly payment to be “in good standing” with your obligations to the bank. And so the monthly cycle begins again. In Panama there exists the Panamanian Credit Association (APC) which registers the credit and service relationships that a person maintains. Based on this registry the banks investigate and verify your degree of indebtedness. Therefore, banks may contact you to offer you more banking services and products.
In Panama it is normal for people to keep three, four or five bank accounts since each bank can offer them different products and services in competition with other banks and there are banks that will offer to pay you better interest rates than others. It is well known that in Europe people often stay with one bank for 40 years, this practice is not the same in Panama.
Online Banking in Panama
Banks in Panama also offer online banking, many with their own mobile APP. We recommend that when you are opening your bank account in Panama you do not leave the bank until a bank officer helps you get the online banking running and your card activated. There are banks in Panama that do not invest much in the quality of customer service and although they offer to pay good interests and have a nice selection of banking products they are very deficient in customer service. So, if you are abroad, getting the bank to help you with Online Banking is going to be a problem.
Digital Banks and Fintech Banks
In Panama there are no Fintech banks. For this reason banks with banking licenses are very jealous and for this reason there are banks that will not accept to receive international transfers from Fintech banks (like Wise, formerly known as Transferwise). Fintech banks as we know are digital banks that are very economical and have zero maintenance costs because they do not exist physically in one place and do not have employees in an office offering walk-in customer service, and therefore they can compete. These Fintech banks are distinguished by handling multiple currencies in a single account and thus compete with the fees of physical banks. But as everywhere in the world, demand creates new services and products and we might see some interesting changes in the Panamanian banking market in the future.
What is your experience with the banking system in Panama? Send me your questions!