Taxation

• Foreign-earned interest is treated the same as interest earned within the United States, and is taxed at ordinary income rates. However, the IRS warns that hiding the interest earned in foreign bank accounts will have more severe consequences such as penalties, interest, fines and possibly imprisonment.
  
  

Foreign Exchange

• When you earn interest in a foreign currency on an international bank account, you must convert the amounts using the appropriate exchange rate for each date of receipt, and report it as U.S. dollars on your tax return.
  
  

Reporting

• To insure that international bank account holders pay the appropriate amount of income tax on foreign interest, the IRS requires taxpayers to file a Report of Foreign Bank and Financial Accounts by June 30 of each year, if the combined value of one or more foreign bank accounts at any time during the year exceeds $10,000. This report requires detailed information such as bank names, account numbers and balances.