Let’s explore what a virtual bank account is and why you may need one.
What Is a Virtual Bank Account?
You’ve probably already guessed what a virtual bank account is by the name alone. It’s a bank account that “lives” on the Internet which you can’t access by visiting a brick-and-mortar bank. You don’t use a virtual bank account like you would a normal one. For instance, you probably won’t open a savings, pension, or ISA account via a virtual bank service. However, they are fantastic at storing and moving money in different currencies. This isn’t their most powerful feature, though. What’s impressive about virtual banks is that they give you a physical address and bank code for each currency. Some services will give you these details upfront, while others will ask for an ID check first. Either way, once you have these details, you can use them to send or receive payments as if you had a bank account in that country. For instance, given that I’m in the UK, I can open a US virtual bank account and work in dollars without applying through an official bank. I lose out on the additional features that a traditional bank would offer, but that’s fine; I only want to use the account to send and receive money between US dollars and Great British Pounds.
Using a Virtual Bank Account
When you use a virtual bank account, it’s typically for one of two reasons: you’re either sending or receiving money in a different currency than your own.
Receiving Money into a Virtual Bank Account
Receiving money is one of the biggest fortes for a virtual bank account. If you receive money from abroad on a regular basis, you can save a lot of money using one. For example, let’s say you sell something overseas, and the client wants to pay you. They can only pay via bank transfer, and while you can give them your local bank details, you know that the bank will heap on loads of transaction fees for an overseas transaction. To stop this, you set up an account with a provider that has low currency conversion fees. Then, you give your client the details of your virtual bank account in their currency. They pay into your virtual account, which accrues minimal (if any) fees. This is because the client’s bank and your virtual bank in their currency are in the same country. You use the virtual bank service to convert the currency into your own. If you picked a service with minimal fees, this should be pretty cheap. The money will leave your foreign account and enter your domestic account. You can then set up a transfer from your domestic virtual account into your bank. Your bank sees a transaction in your home currency come from a bank in the same country, so it doesn’t treat it as a foreign transaction. As a result, you don’t get the hefty fees.
Sending Money from a Virtual Bank Account
In a similar vein, you can use these services to reduce the cost of sending money abroad. Sometimes a bank will take a sizable sum when sending money overseas; if yours is less-than-friendly with overseas transfers, you can use a virtual account. In this case, sending money is the inverse of the above. You send the money from your bank to the virtual account with your currency, which counts as a domestic transaction. You then convert the money and send it in the currency of your recipient. Some virtual bank services let you send straight from your domestic currency and do all the conversion for you to save time.
Examples of Virtual Bank Use
As someone who receives money from overseas sources, I make good use of virtual bank services to ensure it goes smoothly and cheaply. As such, I wanted to talk about what I use and how it helps me, to show how these accounts work in real life. When receiving money from businesses abroad, I like to use Payoneer. It’s a service that revolves around paying remote workers, and it makes the process much easier. Payoneer does forbid personal use of its accounts, so you should only get it to send or receive pay for work. The person paying you does need to set up Payoneer on their end to get it to work with you, so I don’t use it for all transactions; however, those who do use it let me accept foreign currencies with fewer fees than a bank transfer or PayPal. For personal use and for clients who don’t use Payoneer, I typically go for Wise. This has a really good conversion rate, which came in handy when I had to send money to South Africa.
Banking on Virtual Banks
If you send and receive foreign currency often, do know that Paypal is not the only way. There are plenty of Paypal alternatives, and a virtual bank is one of them. There are plenty to choose from, so pick one with a focus that suits you the best.
