Many Americans in the UK use Wise (formerly known as TransferWise) to transfer money between GBP and USD and take advantage of their “Borderless” accounts to facilitate a multi-currency lifestyle. I used Wise myself when I first moved to the UK, and generally think it’s a great product – it was a vital lifeline for the first few weeks until I got a “real” UK bank account. It’s also a very quick, convenient, and low cost way of sending money in either direction. Not quite as cheap as Interactive Brokers for any larger amounts, but certainly an easier customer experience!
Recently, they’ve started offering to hold your balance in different “Assets” – basically, instead of a 0% interest account, they will either put the money in “Stocks” or “Interest”. Stocks has been around for a few months, Interest is the new part that initially interested me, but led to this article when I dug in a bit.
Stocks is an all-world equity index fund, Interest is a GBP, EUR, or USD bond index fund. Critically, these are non-US funds, a mix of Irish and Luxembourgish domiciles – PFICs!
So while Wise is great for holding 0% interest cash and moving it between currencies, US taxpayers should definitely not use it for investing. Scroll down to the bottom of their “Who can use Assets” page and they call out that US citizens/taxpayers are not eligible, but how well they automatically enforce that is not something I’d want to test.
I’m glad Wise is trying to serve the international personal finance community better, but just wanted to put out a quick warning that this is one feature that US taxpayers should absolutely avoid. Fortunately, the default holding remains cash, which is perfectly fine (just report non-US accounts on your FBAR). At 0% interest and slightly convoluted deposit protection, I wouldn’t hold large balances there, but as an easy way of moving money across currencies, it’s great. Just don’t invest through Wise – maybe someday that feature will come in a way that is US taxpayer-friendly, but that’s not today.
2 thoughts on “Wise Stocks & Interest Assets – Beware of PFICs!”
Out of curiosity I’ve tried to apply for both the Interest and Shares features but it asks if you are a U.S. person or have more than one tax residency (can’t remember the precise wording) then refuses to let you open one if so. It they hope to offer it to us in the future, but that’s even more dangerous if it remains PFIC.
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Glad they have some safeguards on there – it wasn’t obvious until you scroll down on that help page, and when they first released Stocks, I got pretty far into the process before I got a KID that made it clear it was a PFIC.
Maybe if the UK repeals UCITS they could offer US ETFs instead (which would also be slightly lower cost for their non-US-taxpaying UK customers, so benefit for everybody).