What You Should Know Before Opening an Offshore Account
Offshore bank accounts are a mystery to the average consumer and investor.
What are they, and why should you open an offshore bank account? Can you open an offshore bank account online?
This overview will answer your questions and provide you with everything you need to get started with an online offshore bank account.
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Offshore Banking: What It Is and Why You Should Open an Offshore Bank Account
Offshore banking refers to bank accounts outside the country belonging to people that may be non-residents of that particular country or jurisdiction. For example, if you live in the United States, you may own an offshore bank account in Switzerland.
If this occurs in a tax haven country, the account owners as individuals or as a business have little to no tax liability. These tax havens also contribute little information about the account owner’s financial transactions to foreign tax authorities.
As with any financial investments, you should be aware of the drawbacks. You may earn interest at a higher rate than a domestic savings account, so there may be a tax liability on that offshore bank account with the foreign country. The fees for exchanging currencies can run high if you plan to make a large number of deposits and withdrawals.
Still, the ability to diversify your portfolio with foreign currency is one of many advantages to an online offshore bank account. This is especially worthwhile is if your country’s currency is weak or unstable.
There are several reasons why opening an offshore bank account may be advantageous to you:
- An offshore bank account is legal. Consumers may believe that offshore banking is illegal due to the mystery surrounding the accounts and how movies portray them. You are not trying to get away with tax evasion; instead, you are depositing your money into a less volatile account with a well-capitalized financial institution.
- Most are larger financial institutions with sound banking systems and processes. The best offshore bank accounts are held by institutions that take little to no risk with your money. As many financial institutions in your home country only keep a small amount of money on-site to fulfill customer requests, larger foreign banks keep a greater amount and are less likely to invest your money into something else. Offshore bank accounts online use high security measures to protect your funds while using their own platforms as well.
- You can protect your money from government freezes or confiscation. The political risk is lower with an offshore bank account. When political climate changes or becomes volatile, the government can have access to the population’s individual or business accounts. Opening an offshore bank account can protect your money in the case of a political upheaval or government agency with the power to seize your money.
- You can diversify your portfolio. By including foreign currencies in your portfolio, you can diversify the risk. Foreign banks make this easy with online offshore banking accounts and platforms you can access at anytime.
- Offshore bank accounts tend to have higher interest rates on deposits. In the United States, interest rates for deposits are low and savers are feeling it, according to an article with USA Today. The low interest rates for savings accounts and certificates of deposit are not expected to increase in the near future. The best offshore bank accounts will pay you a higher interest rate than you can find in your home country.
- While traveling or in need of medical care overseas, offshore bank accounts are protected from capital controls. If you travel overseas for a living or for vacation, offshore banking can give you a layer of extra protection in case you require medical treatment without the bureaucratic red tape.
- You will have privacy and an available account in case of an emergency or crisis. You never know what may occur when it comes to finances and the market. Having a small account available may relieve some worry and stress in the event of a political change or market disturbance. If you have less than $10,000 in your offshore bank accounts, you may not need to report it. Consult with a tax advisor about specific details and terms in regards to foreign accounts and tax reporting for your country. The IRS has steep penalties for not reporting your offshore banking to the Treasury Department as well as any worldwide income.
Several offshore banking institutions are located on island jurisdictions, like the Islands of Jersey. The financial industry is one of the few industries these islands are competitive in compared to other major countries. Offshore bank accounts are opening with competing interest rates and other products and services.
Offshore Banking: How to Open Offshore Bank Accounts Online
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Now that you see all of the advantages to offshore bank accounts, opening one is the next step. Each financial institution has its own process for new customers; however, there are several steps they have in common. You will need to provide personal identification documentation. These can include your driver’s license, passport, a utility bill to prove residence, and other verification.
Your documents will probably need to be notarized or bare the apostilles stamp. Only certain countries accept the apostilles stamp or apostilles document, so make sure you know which form of authentication is required to open an offshore bank account.
The offshore financial institution may ask you to produce past bank statements from your current bank.
This is a precaution the banks take to avoid tax fraud and illegal activities in offshore banking. The bank will want to confirm that you are a trustworthy individual, as proved by a history of transactions with your bank. The offshore bank may also need to know where your deposits will be coming from and your plans for this particular online offshore bank account.
Depending on the source of the funds, you will need to produce documentation proving the money coming in is not from illegal transactions, such as money laundering. Recently, offshore banks have become more stringent in their processes in order to meet regulations and prevent fraud and other illegal activities. Be prepared to complete a large amount of paperwork at most foreign banks.
The following is a list of common deposit sources and the paperwork you may need to produce:
- Income from your job: You can give the bank a wage slip or copies of your check stubs. You can get this documentation from your employer.
- Investments: You may be asked to produce proof of the type of investments you have and where they are being held. Your broker can give you this information.
- Business transactions: The financial institution will want copies of your sales contracts and other detailed documentation. Keep copies of your transactions for this purpose.
- Real estate: Just like with business transactions, you will probably need to provide proof of sales. Keeping detailed account of all real estate transactions will make opening an offshore bank account a smoother process.
- Inheritance: The executor of the estate may have to provide documentation of the inheritance and the source.
- Insurance: If the source of the deposit is due to an insurance contract or settlement, you may need documentation from the insurance company explaining the payments, whether small deposits or one lump sum.
After you are approved to open an offshore bank account, you will want to begin your deposits. Personal domestic checks are not accepted. Deposits are made through international wire transfers to the offshore financial institutions. You will want to review the financial institution’s wire fees before opening an offshore bank account. You may find another financial institution with better rates.
When you decide to withdraw funds from your offshore bank account, the financial institution should have a number of options. You should be able to link your offshore bank account to your domestic bank account and electronically transfer the funds.
The offshore bank may provide you with an ATM/debit card you can use; however, be sure to ask about the fees charged when you use the card. International ATM fees are typically higher than domestic ATM fees. New offshore bank accounts opening during a bank’s special offer period may be eligible for incentives.
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Offshore Banking: The Best Offshore Banks
If you are wondering where to find foreign banks to open an offshore bank account, consider a few of the following of the best offshore bank accounts:
- Barclays International Banking – This global bank allows you to open an account using the dollar, sterling, or euro currencies, and you can trade in up to 60 different currency pairs.
- Citibank International Personal Banking – This bank offers Dual Currency Placements that gives you access to the foreign exchange markets, and when you open an offshore bank account, you are assigned a qualified investment advisor.
- Lloyd’s Bank Offshore International Account – Customers have 24/7 access to their offshore bank account either through the phone or Internet with this bank and can hold accounts in multiple currencies. The bank also offers products to decrease the amount you would pay for foreign exchange transactions.
- Santander Private Banking – This bank is the fourth-ranked global financial brand. According to the company, the bank has a major financial presence in locations like Geneva, Nassau, New York, Houston, and San Diego. If you want help with your long-term investment strategy, the advisors at this bank can provide you with information and assist you in making a plan.
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- HSBC – This bank does more than help you manage your offshore savings accounts. If you are an international borrower, you will not need a U.S. credit reference to apply for an HSBC mortgage as long as you can provide qualifying documentation to the bank. You can also transfer funds between eligible deposit accounts using Global View and Global Transfers. The foreign currency exchange rates apply.
- Banquede Luxembourg – This bank was awarded the “Best Private Bank in Luxembourg” by Global Finance. The products are focused on individuals and families and include electronic and mobile banking services for your computer, tablet, phone, and other mobile devices.
- Abu Dhabi Commercial Bank – When you open an account with this bank, your money is held in Jersey, considered a leading financial center. You will have access to cross-border inheritance and estate planning, 24/7 banking, and various major currencies. The ATM/debit card is accepted at more than 900,000 ATMs worldwide and millions of retail stores.
- Credit Suisse – Based in Switzerland, this bank is one of the well-known Swiss banks. This award-winning bank features a wealth management technology platform, investment banking specialists, and expert help with cross-border transactions, mergers, and acquisitions.
This is only a small list of the best offshore bank accounts to get you started on your path to offshore banking. As a quick reminder, seek financial advice before opening an offshore bank account to make sure you understand the terms and conditions, including fees and regulations, for each individual banking institution you are considering.
Although you may see ultra-high net income customers using offshore bank accounts online, individuals can open accounts with much smaller deposits. Depending on the financial institution, you can open an offshore bank account for as little as $300. Research and compare the best offshore bank accounts as well as new offshore bank accounts opening globally.
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