What is a nostro account?

Nostro accounts are used by banks making foreign exchange transactions. But what exactly is a nostro account and how is it used?

This guide covers the nostro account meaning, the relationship between the domestic bank you’re making a transfer with, and the facilitator bank holding the nostro account, and the confusing question of nostro vs vostro accounts.

Ready to brush up on a few latin words commonly used in international trading? Let’s dive in.

While we’re here we’ll also look at how you can cut the costs of sending money overseas with Wise and the Wise account.

What is a nostro account?

Let’s start with a quick nostro account definition. A nostro account is an account a bank holds in a foreign bank, which is denominated in the local currency of the foreign bank. Nostro’s latin meaning is ours - so from the perspective of the domestic bank, the nostro account is our account, held by an international bank, in the currency of that country.

Most large commercial banks will need to have one or more nostro accounts in every convertible currency around the world, to facilitate international transfers safely.

What is the difference between a nostro account and a vostro account?

If you’ve heard both of the terms nostro and vostro you might be wondering what the difference is between a nostro and a vostro account. In fact, these terms can refer to the same bank account but from different points of view.

While nostro comes from the Latin ours, vostro is from the Latin for yours. So let’s say a large US bank has an account with a major bank in the UK, held in the local currency, pounds. From the perspective of the US bank, that account is a nostro account - our account held on your books. From the point of view of the UK bank, though, it’s a vostro account - your account held on our books.

How does a nostro account work?

Banks have nostro accounts to let them process transactions in foreign currencies without having a physical presence in that country.

When it’s time to move money across currencies, banks work with their nostro accounts in the currency they need, to deposit and exchange currencies, making international transactions easier. The bank which holds the nostro vostro account is called a facilitator bank and works in partnership with other banks to process international transfers, payments, and exchange.

Example of a nostro account payment

So what does this all really mean? Let’s look at an example.

Take our earlier US bank, which holds a nostro account with a large UK financial institution. When the US bank wants to exchange USD to GBP, they’ll deposit USD to the British bank’s nostro bank in the US. The British bank will then simultaneously deposit the equivalent amount of GBP into the UK based nostro account of the US bank.

It takes a bit of working through to get the process straight in your mind, but it's an established practice in international banking, and will be happening somewhere in the world, right as you read.

Bottom line

Unless you fancy a career in international banking, you might never need to use a nostro or vostro account personally. But if you’re sending money overseas with traditional banks, the chances are that your funds are passing through nostro accounts as part of the process.

Sending international payments with your normal bank might not get you the best exchange rate or the cheapest fees. Before you hit the button to send your money, compare the costs and rates on offer from Wise - you can also check out the Wise account as a great way to hold, exchange and send payments in 50+ currencies. Wise low cost international transfers can be 6x cheaper than your regular bank - and they usually arrive faster too. See how Wise can help you save time and money, today.

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