Offshore banking is a well-liked way of setting aside money outside of the country where you live. There are many plus sides to offshore banking, such as increased confidentiality for your money and protection against political or economic instability. Offshore banking first existed in the Channel Islands, and most offshore banks sit in island nations. Yet the term is also used when referring to banks in countries such as Switzerland, Andorra and Luxemboug which are not islands but carry more resistence than the countries around them.
Not surprisingly, due to being situated in tax-friendly nations or islands, offshore banking is often associated with tax avoidance. On the other hand, money that sits in an offshore bank account is not automatically safe from income tax. The same goes for interest gathered on the capital in offshore checking accounts. Unless you have a distinct arrangement , you are likely to have to pay income tax on the interest you earn irrespective of where that money is kept – here or overseas.
If you live in a country where there are any political problems, or there are tensions in society, it can be advantageous to keep your assets in an offshore bank account. By retaining it in a local bank account you might risk the contents being removed, frozen or becoming worthless. Another plus point is that many offshore accounts offer more attractive rates than in the country of residence and there might be lower account fees involved.
You may additionally be able to obtain an anonymous bank account which your traditional bank may not be able to offer.
To this point it seems as though offshore banking carries many plus points, so what are the negative aspects? One factor that could be less appealing to a potential customer is the fact that the money sitting in an offshore account might in reality be less safe. This can be seen in the financial downturn of recent years, where money sitting in offshore accounts in Iceland was lost. But if the bank in question provides a worthy compensation scheme, this can recover some of the lost funds in case of a major financial loss.
Another downside to offshore banking is that it is often aimed primarily at people with more significant incomes. Lots of bank accounts of this kind do hold high running costs so they might only be worthwhile for you if you do have a healthy salary. However, lots of of them do offer savings options which may be accessed by individuals with regular incomes as well.