Banks and Banking in Mexico
If you are thinking about placing your money in a Mexican bank, you might have some important questions:
What types of bank accounts are available?
Mexican banks allow you to open both deposit accounts and checking accounts.
A deposit account can be either a sight account or a notice account.
With a sight account, you can withdraw money on sight - without giving any notice.
You will usually get a debit card with a sight account.
A sight account usually pays a low interest rate and requires you to keep a minimum amount in your account. You will probably have to keep around 1000 pesos in the account. If your balance drops below the minimum, you will be charged a monthly fee. This tends to be about 100 pesos, not including sales tax, which will be added.
When you open a notice account, you promise to leave your money in the account for a set term - usually between 30 and 360 days.
Some banks will not allow you withdraw any money before the term is over. Others will allow you to take out money before the end of the term, but they will chare you a penalty.
Notice accounts have better interest rates than sight accounts.
All retail banks in Mexico provide checking accounts. Many require you to make a minimum payment each month.
A checking account will allow you to make about ten free withdrawals from an ATM every month. After that, you will have to pay a percentage of the amount withdrawn as commission.
Can I open a US dollar account?
Mexican banks will open accounts in US dollars as well as in Mexican pesos.
What about customer service?
Mexican banks have a reputation for poor customer service.
Lines at banks can be very long, especially around paydays (usually every 15 days).
Customer service seems to have been improving lately.
Can I have internet access?
All of Mexico’s main banks offer internet access. This is usually free. You can use online baking to pay bills and transfer funds between accounts.
The process to open up an online account at a Mexican bank can be quite cumbersome. However, it will be less time-consuming than waiting in long lines at the bank.
Can I take out a mortgage or a loan, or get a credit card?
All of Mexico’s banks provide mortgages. Some banks will offer low interest rates at first, increasing the rates later on.
Others will offer low interest rates but charge higher opening fees to compensate, or they will offer reduced fees but charge more interest.
If you have good credit with your bank, your bank may offer you a personal loan known as a Prestamo Nomina. You will have to have your salary deposited directly into your bank account in order to be granted a Prestamo Nomina.
You can get a car loan directly from a bank or through a car dealer. Car loans are among the Mexican banking industries most completive financial products.
Credit cards are readily available in Mexico.
Many stores offer deals that allow you use credit cards for 6 months or 12 months without paying interest. During this time, the cost of any item that you purchase will be divided into 6 or 12 payments. If you miss a payment, you may have to pay a penalty, and the credit card company may start charging you interest.
What kind of interest rates can I expect?
Unfortunately, Mexican banks are known for their low deposit rates and high borrowing rates.
Interest rate on a credit card can be as much as 50% per annum.
What kind of bank charges can I expect?
Mexican banks are also known for charges and commissions that are both very high and very complicated.
Headline interest rates will not include fees and commissions.
Since 1996, the Bank of Mexico, Mexico’s central bank, has required all marketing and sales literature from banks to include the Costo Anual Total or CAT. The CAT includes all fees, commissions and other charges. It does not include sales tax.
In late 2007, President Felipe Calderon promised to increase competition in Mexico’s banking sector. This should, hopefully, result in the continued lowering of charges and commissions.
Will I have to pay sales tax?
In Mexico, sales tax, which is known s Impuesto al Valor Agregado (IVA) is applied to all credit interest, bank charges, commissions and opening fees.
Sales tax is not applied to mortgage interest payments.
CAT does not include sales tax. So keep in mind that the total amount that you pay will be higher than the amount shown as the CAT.
What should I look out for when applying for a bank loan?
In addition to looking at fees and interest rates, try to avoid having extra products added onto the loan.
Mexican banks frequently offer extra financial products - such as insurance policies - with their loans. For example, if you take out a car loan, the bank may suggest that you purchase car insurance with the loan.
The cost of the additional financial product (e.g. insurance premiums) is spread out over the loan. This means that you will be paying additional interest.
What happens if I miss a payment?
If you miss a payment on a loan, mortgage or credit card, you will receive expensive bank charges and your credit score will be penalized.
Any discount on your interest rate may be revoked and you may have to pay a higher interest rate for the remainder of the loan.
How do I apply for credit?
Mexico has only one credit rating agency - El Buró de Crédito. This is a private company that is owned, collectively, by all of the banks of Mexico.
Financial institutions in Mexico use El Buró to share credit information among themselves. They use El Buró to determine the credit risks of potential customers and to keep historical records of borrower’s financial activities.
Employers may use El Buró de Crédito to check the credit of potential employees.
To apply for credit facilities in Mexico, you must be a Mexican national or a resident of Mexico with an FM2 or FM3 visa.
A foreign national applying for credit in Mexico for the first time will need a credit reference or a bank reference from her or his home country.
Everyone applying for credit will have to show proof of income, such as a bank statement, a letter from a bank or a letter from an employer.
You may apply for credit directly from a bank or, if you are using the credit to purchase a durable good such as a car, you may apply for credit directly from the company that is selling the durable good.
Can I contribute to a pension?
Every Mexican bank allows Mexican nationals and legal residents of Mexico to save money in AFOREs. An AFORE is a pension product that offers tax savings. With an AFORE, you, your employer and the Mexican government all place money in a savings pot. This money is invested, so the performance of the Mexican stock market will affect the value of an AFORE.
You may move an AFORE between banks, although there are some legal restrictions regarding how and when this can be done.
AFOREs have annual management charges.
I’m a high net worth consumer. Are there any premium banking services available to me?
Mexican banks provide their high net worth customers with many premium services, such as preferential rates and help with managing their investment portfolios.
What about business banking?
Mexican banks offer many services for small and medium enterprises (SMEs).
These include payroll services, business loans and business credit cards.
Bank charges and interest rates tend to be higher for business than for individuals.
Do Mexican banks offer foreign exchange services?
All Mexican banks allow you to exchange foreign currency. However, you may find more competitive rates elsewhere.
Do I have to understand Spanish?
Some Mexican banks will translate contracts into English.
However, the Spanish version of any contract, such as a mortgage contract or a credit agreement, will be the official version.
In the event of a dispute, only the Spanish contract will be recognized legally
History of Mexican Banking
Understanding the history of Mexican banking will make it easier for you to understand how the Mexican baking industry operates, and therefore help you to make wise financial choices.
Two financial crises - one in the 1980s and one in the 1990s - have had a significant effect on Mexico’s banking industry.
The oil boom of the 1970s was followed by a financial crisis that eventually resulted in President Portillo nationalizing all of Mexico’s banks in 1982.
For almost ten years, the banks had no independent regulation.
Most of the banks’ reserves were used to pay for government projects.
Consumers were faced with expensive fees. Only a few unattractive financial products were available.
Between 1991 and 1992, President Salinas reprivatized the banking system.
Foreign banks starting purchasing large stakes in Mexico’s banks. However, foreign banks were not allowed to own the majority of shares of any bank in Mexico.
The new foreign owners did not have much experience with retail banking. They were not capable of developing substantial credit services.
Mexican banks started to develop a small number of mortgages for real estate. These had high interest rates and high fees.
In 1994, the low reserves and low capital led to another financial crisis in Mexico, eventually causing President Zedillo to devaluate the Mexican peso the following year.
The devaluation of the peso resulted in interest rates increased to about 110%, which in turn had caused many consumers to default on credit cards, loans and mortgages.
In response, credit was tightened severely.
In 1995, Mexico’s Congress allowed foreigners to gain majority ownership in Mexican banks, with some restrictions.
In 1998, the Mexican banking industry was opened completely. Many more foreigners began investing in Mexico’s banks.
They were attracted by the undervaluation of the Mexican banks, assets and by the way that Mexico’s economy was integrating itself with the American and Canadian economies.
By 2002, all major banks in Mexico, except for Banorte, were controlled by foreigners.
With foreign ownership, the banks were recapitalized and Mexico’s banking system was stabilized. Foreign owners brought innovative technologies and new management techniques to the Mexican banking industry, leading to increased profits in Mexico’s banking markets and credit markets.