What a Foreign Bank Account Is and How It Works

A foreign bank account is a deposit account held at a bank outside your country of citizenship or residence

A foreign bank account is simply a checking, savings, or investment account you open and maintain at a financial institution in another country. If you are a U.S. citizen or resident, any account you hold at a bank, credit union, or investment firm outside the United States counts as a foreign account — whether that bank is in Canada, the United Kingdom, Mexico, India, or anywhere else.

People open foreign accounts for many reasons: they work abroad and need local banking, they receive income in another country, they maintain ties to their home country, or they hold assets internationally. The account itself works the same way as a domestic account — you deposit money, withdraw it, pay bills, and earn interest. The difference is where the bank is located and what reporting rules apply to you as a U.S. person.

The key thing to understand is that holding a foreign account does not make you a tax evader or a criminal. Millions of Americans, expats, and visa holders maintain foreign accounts legally. But the U.S. government requires you to report these accounts to the IRS and the Treasury Department if they meet certain thresholds — and the rules are strict about timing and accuracy.

Key Takeaways

• A foreign bank account is any deposit or investment account you hold at a financial institution outside the United States.
• You must report foreign accounts to the IRS if the total value of all your foreign accounts exceeds $10,000 at any point during the calendar year.
• The main reporting form is the FBAR (Foreign Bank Account Report), filed with the Treasury Department by April 15 of the following year, with an automatic extension to October 15.
• You may also need to file Form 8938 with your tax return if your foreign financial assets exceed certain thresholds, which vary based on your filing status and whether you live in the United States.
• Failure to report foreign accounts can result in civil penalties of $10,000 or more per violation, plus potential criminal charges.

Why the U.S. requires reporting of foreign accounts

The U.S. taxes its citizens and residents on worldwide income, regardless of where they earn it or where they bank. This means if you are a U.S. citizen living in France and earn money in France, you still owe U.S. federal income tax on that money. To enforce this rule and prevent tax evasion, the IRS and the Treasury Department require you to disclose foreign financial accounts.

The reporting requirement exists because money held overseas can be harder to track. By requiring disclosure, the government ensures it knows about your foreign income sources and can verify that you are paying the correct amount of tax. This is not about punishing people who live or work abroad — it is about transparency and making sure the tax system works fairly for everyone.

The rules have become stricter over the past 15 years. In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), which requires foreign banks to report accounts held by U.S. persons directly to the IRS. This means your foreign bank already knows it must tell the IRS about your account. Hiding money abroad is no longer realistic, and attempting to do so carries serious penalties.

The FBAR: the main reporting form for foreign accounts

The FBAR (FinCEN Form 114, also called the Foreign Bank Account Report) is the primary form you use to report foreign accounts to the U.S. Treasury Department. You file it electronically through FinCEN's online system, not through the IRS.

You must file an FBAR if the total value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year. This is a combined threshold — if you have three accounts worth $3,000, $4,000, and $4,500, you have crossed the $10,000 line and must file. The $10,000 figure is the same whether you live in the U.S. or abroad.

The FBAR is due by April 15 of the year following the year being reported. For example, if you held foreign accounts in 2024, your FBAR for 2024 is due April 15, 2025. You can request an automatic extension to October 15 by filing Form 4868 with the IRS, even though the FBAR itself goes to the Treasury Department. If you miss the deadline without an extension, penalties begin to accrue immediately.

On the FBAR, you list every foreign financial account you had access to or control over during the year — not just accounts in your name. This includes joint accounts, accounts you are a signatory on, and accounts you have power of attorney over. You report the account number, the bank name and address, the account type, and the maximum value the account reached during the year.

Form 8938: additional reporting for foreign assets

In addition to the FBAR, you may need to file Form 8938 (Statement of Specified Foreign Financial Assets) with your federal tax return. This form reports foreign financial assets — which includes bank accounts but also stocks, bonds, mutual funds, and other investments held abroad.

The threshold for Form 8938 depends on your filing status and whether you live in the United States. If you are a single filer living in the U.S., you file Form 8938 only if your foreign assets exceed $200,000 on the last day of the year or $300,000 at any point during the year. If you are married filing jointly and live in the U.S., the thresholds are $400,000 and $600,000. If you live abroad, the thresholds are higher: $400,000 and $600,000 for single filers, and $600,000 and $900,000 for married couples.

Form 8938 is filed with your Form 1040 tax return. Unlike the FBAR, which goes to the Treasury Department, Form 8938 goes to the IRS as part of your tax filing. You may need to file both forms if your foreign accounts are large enough. The FBAR and Form 8938 overlap in what they report, but they serve different purposes and go to different agencies, so both are required when the thresholds are met.

Types of accounts that count as foreign accounts

A foreign account is any account at a financial institution outside the U.S. that holds money or financial assets in your name, jointly, or under your control. This includes:

• Savings accounts and checking accounts at foreign banks
• Money market accounts and certificates of deposit (CDs) at foreign institutions
• Brokerage accounts holding stocks, bonds, or mutual funds abroad
• Retirement accounts such as RRSPs (in Canada) or ISAs (in the United Kingdom)
• Investment accounts at foreign investment firms
• Accounts held in the name of a foreign trust or foreign corporation that you control
• Joint accounts where you are a co-owner
• Accounts you have power of attorney over, even if you do not own them

Accounts that do NOT count include U.S. accounts held by a foreign bank (for example, a U.S. savings account at a branch of a foreign bank located in New York), and accounts held entirely by a U.S. corporation or partnership that you do not control.

Penalties for not reporting foreign accounts

The penalties for failing to file an FBAR or Form 8938 are severe. If you miss the FBAR deadline, the Treasury Department can impose a civil penalty of $10,000 per violation for each year you did not file. If the failure was willful — meaning you knew you were supposed to file and chose not to — the penalty can be up to $100,000 or 50 percent of the account balance, whichever is larger.

Penalties for Form 8938 are assessed by the IRS. If you fail to file Form 8938 when required, the penalty is $10,000 per year. If you do not correct the failure within 90 days of the IRS notifying you, an additional penalty of $10,000 per year applies. Willful failure to file can result in penalties up to $50,000.

Beyond civil penalties, the IRS can pursue criminal charges for tax evasion if it believes you intentionally hid foreign income or accounts. Criminal convictions can result in prison time and fines in the hundreds of thousands of dollars. These are not common outcomes, but they do happen, and they are the reason the IRS takes foreign account reporting very seriously.

If you have missed filing in prior years, you can use the IRS Voluntary Disclosure Practice to come forward, file back returns, and pay taxes owed with reduced penalties. This option is available only if you have not already been contacted by the IRS about the unreported accounts.

How to open and maintain a foreign bank account

Opening a foreign bank account is straightforward if you are living or working in that country. You typically visit a branch in person, bring your passport and proof of address, and complete an account application. Many foreign banks now require a minimum deposit, which varies by country and bank.

If you are opening an account remotely from the United States, the process is more difficult. Many foreign banks will not open accounts for U.S. residents or citizens who are not physically present, because of the compliance burden FATCA places on them. Some banks have closed accounts held by U.S. persons entirely. If you need a foreign account, your best options are banks in countries with strong U.S. ties (Canada, the United Kingdom, Australia) or banks that specialize in serving expats.

Once your account is open, you will receive statements from the bank, usually monthly or quarterly. Keep these statements — you will need them to complete your FBAR and Form 8938. Many foreign banks now provide online access, which makes it easier to track your balance throughout the year and know when you have crossed the $10,000 reporting threshold.

Frequently Asked Questions

Do I have to report a foreign account if I only have a small amount of money in it?

You must file an FBAR only if the total of all your foreign accounts exceeds $10,000 at any point during the year. If you have one account with $8,000, you do not file. But if you have two accounts with $5,000 each, you do file because the combined total is $10,000. The threshold applies to the sum of all foreign accounts, not each individual account.

What if I inherit a foreign bank account from a relative?

If you inherit a foreign account and it is now in your name or under your control, you must report it on your FBAR if the total value of all your foreign accounts exceeds $10,000. You will also owe U.S. income tax on any interest or income the account generates going forward. Inherited accounts have special rules for estate tax purposes, so consult a tax professional if the account is large.

Can I get in trouble for opening a foreign account without knowing about the reporting rules?

Ignorance of the reporting requirement is not a legal defense, but it can affect the severity of penalties. If you did not know you were supposed to file an FBAR and you file it now, the IRS may reduce penalties if you can show reasonable cause. The best approach is to file as soon as you realize you missed a deadline and to consult a tax professional who handles international tax matters.

Do I need to report a foreign account if I am not a U.S. citizen?

If you are a U.S. resident alien (green card holder) or a visa holder who meets the substantial presence test, you are treated as a U.S. person for tax purposes and must report foreign accounts. If you are a nonresident alien, the rules are different and depend on your visa status and income sources. Consult a tax professional to determine your filing obligations.

What happens if my foreign bank closes my account because I am a U.S. person?

Some foreign banks have closed accounts held by U.S. persons because of FATCA compliance costs. If this happens, the bank must give you notice and time to withdraw your funds. You do not owe penalties for the account closure itself. If you need banking services abroad, look for banks that actively serve U.S. expats or consider using online banks that operate internationally.