What are the benefits of offshore banking and offshore bank accounts? That’s a big question. Not because it’s hard to understand. But because there are so many benefits that people and businesses get by going offshore.
The benefits of offshore banking can be broken down into three main categories: Security, Opportunity, and Freedom. In each of these categories are specific benefits of offshore banking. And you can access them by opening offshore bank accounts. We explain this in detail below.
If you’re new to offshore banking, it might be hard to believe that offshore banks are safer than those banks in your home country. This is called “home bias,” and it’s a normal fault. It happens when you think that something is “better” simply because it originates in your home country.
But, we don’t have to look far for proof that this is wrong. Before the last financial crisis, most Americans would say that US banks were the best in the world. But then the world learned the hard way that US banks exposed depositors, and the country, to serious financial risk.
In fact, since 2008 the Federal Deposit Insurance Corporation (FDIC) had to bail out 531 different banks in the United States. Banks even failed in 2019, while the stock market was booming, the economy was strong, and unemployment was low.
Banks in Western countries tend to maintain very low reserves and operate on low levels of liquidity. They do this because they can, because bank customers are uninformed, and because that’s how their current business models function. Instead of focusing all of their attention on delivering services and generating revenue from fees they make money by risking depositor money on bad loans and high-risk investments.
Many banks in the Western world are in horrible financial health. But, you can still find safe banks offshore. Banks abroad tend to be fiscally responsible, well-capitalized, have strict liquidity and capitalization requirements, operate safe business models, and invest more conservatively.
In other words, foreign banks are safe because they’re in far better financial shape and operate far more conservatively than banks in major Western countries.
To learn how to find the best offshore banks read our Ultimate Guide to Offshore Banking for FREE here.
Safe banks are the byproduct of safe banking systems.
But Singapore is just one of many examples. Safe offshore and international banks are the result of sound banking systems. Sound banking systems legally require banks operating within their borders to be financially healthy and be fiscally responsible. They can’t invest depositor funds carelessly. They have to have certain capitalization and liquidity rates. Banks that don’t follow the rules lose their banking licenses and cease to exist.
Whether you’re considering the traditional offshore accounts of Switzerland or Liechtenstein or more modern versions of offshore banking in Panama or Singapore, many offshore jurisdictions have solid banking systems.
In fact, while Hollywood, Western governments, and the media would prefer you to think that offshore banking is unsophisticated and shady, it’s actually the opposite. Because many offshore jurisdictions are heavily dependent on offshore financial services, it’s important that their banks are fully compliant, efficiently run, and regulated in a way that is sustainable and makes financial sense. After all, one banking scandal can ruin the economy.
In fact, the absence of deposit insurance can encourage better banking practices and healthier banks. Without the “back-stop” provided by the FDIC or similar deposit scheme, there’s more pressure to maintain a healthy, well-regulated banking sector. If banks risk depositor money on flagrant investments or make fiscally irresponsible moves, they could damage the entire economy.
Thus, just because a country doesn’t have a deposit insurance scheme doesn’t mean it’s banking system is “unsafe.” Sometimes the lack of safety net leads to a healthier banking sector, better-protected depositor money, stronger bank balance sheets, and less high-risk behavior.
It seems like there is more political and economic uncertainty today than there has been at any time in the last 50 years. And as a result, we’re seeing a lot of political, social, and economic unrest around the world.
Whether you’re sitting in the US, Europe, South Africa, or China, you’re probably seeing the byproducts of increased unrest. With major elections on the horizon, economic uncertainty increasing, and ongoing social unrest in major parts of the world, there’s no end in sight.
One of the major benefits of offshore banking and bank accounts is that it allows you to move your money into a different economic and political system. In addition to the many other financial benefits outlined below, having an offshore bank account allows you to dramatically minimize and diversify away from the risks in your home country.
This is critical for anyone living in a country with political or economic uncertainty, whether that’s France, Argentina, or the US. Even if you choose to move a small portion of your money abroad, at least you’re protecting that portion of your funds from trouble at home.
Reducing taxes is one of the biggest motivators when people restructure their lives overseas and start banking offshore.
And, it makes sense. Especially if you’re paying over 30% of your hard-earned income to a government in a country that you barely spend time in and receive no benefits from.
Yes, having an offshore bank account, earning interest, and in some cases receiving income into an offshore account can help you reduce your taxes. But there are other elements that you need to consider as well.
Each country has different tax laws. And there are tons of nuances and considerations, as everyone’s tax situation and goals are different. But, it’s important to understand the basics and know where and how offshore banking can help you achieve your tax minimization goals.
For example, you need to understand the nuances of tax (fiscal) residency as it relates to you, your business, and any other structures you have. You also need to know the specific tax implications of your personal citizenship and residency.
In certain instances, depending on your citizenship, you will never be able to completely remove your personal tax burden. This impacts people who are citizens of countries with citizenship-based taxation, like the US and Eritrea. Unlike the rest of the world, citizens from these two countries cannot simply move abroad, become a tax resident of another country, and stop paying tax to their home country.
Some countries have certain formalities, like procedures and paperwork that must be submitted before you can fully detach yourself from the tax system and obtain “non-resident” status. Other countries have no formalities at all and you simply move abroad.
Corporate tax is different. And similar to personal taxation, offshore banking alone isn’t going to reduce your company’s taxes. The corporate tax also depends on where your company is registered, where it operates, and where the customers are based.
In certain instances, corporate taxes can be reduced legally by not repatriating funds back to the country of incorporation. Singapore is a great example of this strategy. And it’s worth exploring for anyone who has, or could benefit from, a Singapore company.
What we are talking about is protecting your money, insulating it from unnecessary risk, and keeping your financial affairs private.
This means not broadcasting to the world that you keep your money in a certain bank or in a certain jurisdiction. Why? So people won’t know where to cause you the most harm, such as issuing frivolous lawsuits or suing your business
Privacy can also mean keeping your money in a country where you do not have a large personal or business presence. Why? Because you wouldn’t want your banker accidentally sharing your financial information with anyone you wouldn’t approve of.
Banking in a country with strong banking privacy laws is critical to protecting your private financial affairs. In such countries, it is often a criminal offense to share account holder information with third parties unless through official government channels and required by law.
Depending on the country where you bank, this can mean jail time and major fines for bank employees that share your information without following appropriate protocol.
And while banking privacy isn’t what it used to be, it can still be beneficial to know that your information isn’t going to be openly shared with anyone outside of your bank and authorized officers of the bank.
Compare that to opening an account in a jurisdiction where your account manager might be interacting with people in the same social circles or business network – not to mention people that are out to cause you harm. Likewise, if they were to “accidentally” share your personal financial affairs in an informal setting, the local legal system would only deliver a minor slap on the wrist.
One of the biggest risks to your wealth, no matter which country you bank in is inflation. And if you are banking in a country with high-inflation and holding funds in a local currency, chances are that your savings are withering away.
This is especially true for people from developing countries or countries with out-of-control inflation rates, such as Argentina, Venezuela, Zimbabwe, Iran.
Looking at the example of Argentina, many Argentines don’t put their money in the bank at all. And for good reason. If you’re receiving a 20% interest rate on your savings account, but the country is facing 40% inflation, the value of your money is being cut in half every 12 months.
And while this has been going on for decades in Argentina, the only way that they protect their money from future devaluation is to seek the benefits of offshore bank accounts and hold stable currencies, like the US dollar.
Now, you might be thinking “why not just hold USD in Argentina, wouldn’t that be easier?” and the answer would be “yes unless the banks force you to convert all of your USD into the local currency.” And that’s exactly what happened in the past.
The only way to shield your money from inflation is to not hold currencies that are impacted by inflation. This means you need to remove your money from the local economy and banking system. Otherwise, you are still subject to the whims of the local banks and government decision-makers.
The need for asset protection has never been higher. This is especially true if you’re engaged in any kind of business or professional service. But it’s not just professionals that need to protect their assets. There are countless reasons why someone can sue you or your business. So the need for asset protection extends to absolutely everyone.
Fact: If you keep 100% of your assets in the same country where you live and work then you’re exposing yourself to serious (and unnecessary) legal and financial risk.
While there is no such thing as 100% protection, a foreign bank account can help make you a less attractive target for litigation, help diversify (and grow) your assets, and minimize risk. In fact, without an offshore bank account, you’re exposed.
And your assets aren’t just at risk when one of the above claims goes through. In the US, or in any litigious country, it’s easy for an overzealous judge or official to freeze and seize assets before adequate due process. That’s very difficult to do if all your assets are in a foreign country.
Asset protection is a major benefit of offshore banking. By simply opening a bank account in a foreign country, you can legally protect yourself from overreaching governments, ambulance-chasing lawyers, frivolous lawsuits and acquisitions, unwarranted account freezes and seizures, and the long arm of the law at home. And you ensure that you’ll always have cash available to protect yourself when you need it most.
Whether you do business abroad, travel internationally, invest in foreign markets, or happen to live in a country with a fluctuating currency – protecting yourself against currency swings is important and makes good financial sense.
You can protect yourself from currency risk having an offshore bank account that allows you to hold multiple currencies affordably, in something called a multi-currency account.
Holding different currencies can help you avoid some of the unpleasant challenges already mentioned above, like protecting against inflation. In addition, having the ability to hold and trade different currencies can also protect your money from political and economic crises and even catastrophes.
In fact, diversifying your currency holdings can reduce expenses, give you access to emergency funds abroad, and protect you from unpredictable currency swings.
Unfortunately, holding foreign currencies in a domestic bank account can be expensive. And if it is affordable, the currencies they offer will often have the same risks as the local currency.
With this in mind, one of the best ways to access cost-effective currency diversification is through an offshore bank. In most offshore banking hubs, you can choose from a wide range of international currencies, from major economies to developing markets. And you can hold them much more affordable than in your home country.
In fact, it’s not uncommon for offshore banks to offer multi-currency accounts by default. That means you can hold a variety of currencies for free. Many times, you can hold up to ten or more currencies with a single offshore bank.
This not only reduces your risk but also increases the opportunities you get from being able to quickly act when you see opportunities or risks on the horizon.
One of the most sought after benefits of offshore bank accounts is access to higher interest rates. We talk a lot about interest rates at GlobalBanks, mainly because the rates that you can get abroad can be anywhere from 2 to 10 times higher than your home country.
Seems like a pretty good deal, right?
It’s not uncommon to see interest rates on fixed deposits in US dollars ranging from 3.5% to 5% overseas. And, depending on which country you’re looking at, they can go even higher.
But remember: there is a reason why banks offer these higher rates. They are trying to attract depositors. And, if interest rates are high, there is increased risk…somewhere.
For example, in Mongolia, you’ll see fixed deposits in US dollars for about 5%. But, fixed deposits in the local currency, the Mongolian Tugrik, can fetch 13-15%. While these double-digit rates look attractive on the surface, the inflation rate in the country is also high – that takes a big bite out of your gains. In fact, sometimes, you can even end up with a negative return. So, be careful
In order to get the best return while still protecting your principal and limiting risk, consider fixed deposits in a more stable currency, like the US dollar deposits instead.
To learn more about interest rates and fixed deposits, check out the GlobalBanks Rates Index, which you can access for free by following this link. Here we also share tips and recommendations for how to access the highest interest rates in different countries around the world.
The old adage “don’t put all your eggs in one basket” is very true. After all, investment diversification is one of the biggest benefits of offshore banking.
Well, first, there are investment restrictions in your home country. Certain countries restrict access to certain investment products. In other words, citizens and residents are not allowed to invest in certain investment products unless you meet certain criteria. But the same isn’t true everywhere.
If you have an offshore bank account in a country where those investment products are available, you will be able to access them through your offshore bank account.
For example, having investment accounts at foreign banks typically results in a wider range of products. This also provides access to more investment vehicles that might not be available at your bank back home.
The reasons for this can vary, but the most common reason is that your bank at home doesn’t sell the products you want. And that’s because the bank is acting out of self-interest and wants you to buy their branded products instead.
Now foreign banks aren’t perfect. They will still promote the products that pay them a higher commission. But having a bank account overseas allows you to easily fund a foreign asset manager and buy foreign stocks at lower fees than your home country.
If you run a business that has any cross-border activities or deals with other currencies, having an offshore bank account can be enormously beneficial when it comes to managing costs.
For example, if a Canadian company that banks in Canada has to pay for business expenses in US dollars, and the CAD plummets against the USD, then the Canadian company has to pay significantly more for those expenses.
And while the Canadian company could have a USD account at their Canadian Bank, Canadian banks often have unfavorable currency exchange rates and fees…. because, well, they can.
If the Canadian company had instead opened a USD account at a US bank (an offshore account), they could minimize their currency risk, gain favorable exchange rates from USD to CAD, and enjoy the appreciation of the USD against CAD.
This exact scenario plays out for international businesses each day. Those that take the time to identify the offshore banks with the best rates for their operating currencies will save money and protect their businesses from currency fluctuations.
One of the benefits of offshore banking is dealing with banks that understand the needs of you and your business.
While many banks located in onshore jurisdictions (like your home country) are less likely to accept clients in high-risk industries, it’s not uncommon for offshore banks to be more open to such businesses.
For example, those in the online gambling space might go to Cyprus, Malta, or the Isle of Man. These are jurisdictions that deal with, and therefore understand, gambling businesses.
On the other hand, crypto millionaires flock to jurisdictions that are comfortable with crypto as a source of wealth. This is especially true if they allow for transactions with crypto exchanges.
High-risk businesses might find Mauritius more accommodating to their banking needs.
And those in adult entertainment, gaming, cannabis, pharmaceutical products, and high-volume Amazon FBA businesses might be attracted to different banking jurisdictions altogether.
By choosing an offshore banking jurisdiction that understands your client type (or business type) you are less prone to account closures and freezes. This is because the bank and the banker understand your industry and are comfortable dealing with individuals from your industry.
Another benefit of offshore banking is the ability to choose where you send specific transactions to and from. This is particularly important when dealing with high-risk transactions that could negatively impact your bank account. Negative impacts might include demanding significant supporting documentation, freezing your account for investigation, or shutting down your account altogether.
High-risk transactions can include transactions going from or to countries that the bank considers “risky”. But it can also include transfers from companies that operate in high-risk industries. Alternatively, it can include larger one-off transactions that fall outside your “normal” account activity. A high-risk transaction could also include cashing out crypto holdings via a cryptocurrency exchange. There are countless examples.
Basically, a high-risk transaction is anything that can upset the bank or cut off access to your account. In other words, anything that could potentially trigger an account freeze, disruption, or result in termination of the account.
By locking in the benefits of offshore bank accounts, you can spread your risk and ensure your most important banking relationships are never disrupted. In other words, you increase your optionality and can receive the money without risking bank accounts where you hold a substantial amount of your money.
With newer and stricter banking laws and compliance rules, segregating transaction risk is becoming crucial. It’s important for companies and individuals in high-risk industries that can’t afford to lose access to their bank accounts.
Diversifying your banking transaction risk by segregating transactions to the accounts that you’re less concerned with is key. And it’s only possible if you have tapped into the benefits of offshore bank accounts. And, importantly, doing so at different institutions, in different jurisdictions.
Opening a bank account for a business that is registered abroad is becoming increasingly difficult. Yes, account opening for a large and established foreign company is easy. But, it can be incredibly difficult for startups, small businesses, and international entrepreneurs.
For instance, banks in your home country might refuse to open accounts for foreign companies. Or, if they do, they may require the foreign company to jump through a lot of expensive hoops. This can include providing significantly more documentation than a domestic company.
One of the benefits of offshore bank accounts is that banks abroad are more familiar with the banking needs of foreign companies, non-residents, and international businesses.
As a result, offshore banks are often a great solution for any business. Especially those that are struggling to open a bank account at home.
Protecting your money from the risks that are mounting around the world isn’t enough, you also need to be able to access your money when you need it most.
This isn’t a made-up scenario. It happens more often than you think. And not just during war times and to specific groups.
As we’ve discussed in several sections above, your account can be frozen or blocked for a range of reasons. These include if you are ever sued, accused of a crime, owe back taxes, or are involved in a lawsuit.
People who bank internationally understand the importance of diversifying their banking portfolio. They have tapped into the benefits of offshore bank accounts, and keep an emergency fund outside of their home countries.
And, it makes sense. They see the threat of economic or political risk and the unpredictable nature of their legal system. And they can imagine having their funds confiscated or withdrawn by a government or tax authority. Not to mention a court ruling. Why? Because they’ve seen it happen before.
Keeping your entire nest-egg in only one country today is seen as foolish and narrow-minded. Just ask anyone from Argentina, South Africa, Venezuela, Russia, or from any country that has ever experienced hyperinflation, political or economic unrest, or an overreaching government.
By having an offshore bank account, you automatically have access to an “emergency fund” outside of your home country. That means you will have the ability to access your cash when you need it most, no matter what happens.
Opening an offshore bank account is getting increasingly difficult and expensive. But the benefits of offshore banking and bank accounts are undeniable and well worth the investment.
In fact, even if you only benefit from one of the 15 benefits listed above, it still makes financial sense to keep funds offshore. With this in mind, start building your offshore banking portfolio now before it’s too late.
If you’re ready to take action and start opening international accounts now, you can access GlobalBanks IQ, our dedicated international banking intelligence platform.
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