Benefits offset exchange rates at overseas military banks

Servicemembers overseas will not suffer from higher currency exchange rates at military banks, officials said, because allowances increase to offset the higher rate.

Defense Finance and Accounting Service officials said that overseas servicemembers and other customers of the Community Bank have asked why the foreign exchange rate at these banks differs from that at other banks on the local economy or other published exchange rates.

The exchange rate at Community Bank branches, known as the Community Bank Accommodation Rate, differs because the bank charges a 2.5 percent commission fee to defray costs, officials said. Costs incurred include currency acquisition and delivery to bank customers.

However, to offset this out-of-pocket cost, the overseas housing allowance and cost of living allowance are increased an equal amount.

DFAS runs Community Banks overseas through a competitive solicitation process and award of a contract to a stateside financial institution.

Banking products, services, fees and charges are determined by military department officials. All revenues received from fees and charges are used to offset the cost of the banking program. The bank contractor does not profit from or receive any incentive from the revenues generated.

The banks also are not in competition with local foreign banks but are established to support the U.S. dollar economy on bases overseas and to provide stateside-like banking services to individuals and organizations, DFAS officials said.

The accommodation rate is used to compute overseas station allowances for servicemembers in Germany, Italy, Spain, Portugal, Greece, United Kingdom, Ireland, Netherlands, Belgium, Luxembourg, Finland, France, Austria, Japan, Okinawa and Korea.

Per Diem, Travel and Transportation Allowance Committee officials compare the accommodation rate to the exchange rate used in the pay systems. When the accumulated difference is 5 percent, they reset the pay system exchange rate. This ensures the pay systems rate is as close to the actual bank rate over time as possible, officials said.

Servicemembers residing on the economy in these countries have their rent and utilities recorded in the military pay system in the local currency of the country.

When DFAS computes monthly payroll, the amount of allowable rent and utilities is converted into dollars at the latest pay system exchange rate. Since the pay system rate is based on accommodation rates, the servicemember in effect receives enough dollars to buy the local currency from the bank needed to pay rent and utilities. The net affect on the person’s pay is zero, officials said.

When annual surveys are conducted for the value of goods and services in foreign locations, prices are collected in local currency and the currency exchange rate at the time is identified. That exchange rate is the accommodation rate.

Since the pay systems rates are based on accommodation rates, the servicemembers receive enough dollars in COLA to offset the lower exchange rate at the Community Bank. This formula ensures they receive enough dollars in COLA to buy the amount of local currency that represents the same level of spending documented in the latest annual surveys. In effect, the 2.5 percent accommodation fee is included in the COLA entitlement, officials said.

Overseas allowances for civilian employees stationed overseas are determined by State Department officials.
(Courtesy of American Forces Press Service)