For an expat there are definitely more advantages than disadvantages to using offshore banking. Having said that, how you choose to manage your money will always be a personal choice!
To help you make that choice a fully informed one, please allow us to detail the pros and the cons of choosing an offshore bank account.
You can use the lists below and compare them to your own personal circumstances, and in so doing hopefully identify the best way forward based on your individual situation. If in doubt, always seek the advice of a qualified financial adviser when it comes to decisions affecting your wealth status.
The Advantages of Offshore Banking
- You can bank in different currencies and even multi-currencies – which is of advantage to expats with financial commitments in more than one nation or currency for example.
- If the nation in which you live has a less than favourable economic climate, by keeping your wealth in an offshore bank account you can avoid the risks in your new nation such as high inflation, currency devaluation or even a coup or war.
- For those expats living in a nation where you only pay tax on the money you remit into that country, there is an obvious tax benefit to keeping your money in an offshore bank account.
- Offshore or international accounts are usually designed to offer customers maximum flexibility in terms of account usage. Expats can benefit from this no matter where they are in the world as it can mean they can access their funds from ATMs or online or over the phone at any time of the day or night, no matter what the time zone.
- Any interest earned is usually paid free from the deduction of taxation. For those who don’t pay tax on foreign sourced income this means they can enjoy greater returns immediately, without having to apply for a rebate.
- You can potentially enjoy greater account privacy by going offshore. Some jurisdictions – e.g., Switzerland – place great emphasis on maintaining client confidentiality at all times. For anyone wishing to protect their assets from unfair or speculative litigious behaviour for example, an offshore bank account can be an added deterrent.
- An offshore bank account can be a tool in the armoury of those seeking to protect their estate from inheritance taxes in the future. Accounts tied to trusts or companies can sometimes be beneficial for the legitimate avoidance of estate taxes upon death. Note: specialist estate planning advice needs to be sought by anyone seeking to benefit from such an advantage.
- Some offshore banks charge less and some pay more interest than onshore banks. This is becoming less and less the case nowadays, but it’s worth looking closely at what’s available when seeking to establish a new offshore bank account.
- Because many of the high street banks have offshore arms, you can potentially remain with your current banking provider when you expatriate – and simply swap to having an international or offshore account.
- Less government intervention in offshore financial centres can mean that offshore banks are able to offer more interesting investment services and solutions to their clients.
- You may benefit from having a relationship manager or private bank account manager if you choose a premier or private offshore bank account. Such a service is of benefit to those who desire a more hands on approach to their account’s management from their bank.
- Some banks can offer you Foreign Exchange services, which could minimise the risks of currency fluctuations. and allow you to wait for a specific rate before making the transfer.
The Disadvantages of Offshore Banking
- Historically banking offshore is arguably more risky than banking onshore. This is demonstrated when examining the fallout from the Kaupthing Singer and Friedlander collapse on the Isle of Man. Those onshore in the UK who were affected locally by the nationalisation of the bank’s parent company in Iceland received full compensation. Those who had deposits remotely in offshore accounts in the Isle of Man were lucky if they were repaid the £50,000 guaranteed by the depositor protection scheme.
- The term ‘offshore’ has become synonymous with illegal and immoral money laundering and tax evasion activity. Therefore conceivably anyone with an offshore bank account could be tarred, by some, with the same brush – even though their offshore banking activity is wholly legitimate.
- You have to choose your offshore jurisdiction carefully. Whilst you may well be aware of how the banking industry operates in your own home nation and how it is regulated, the rules and regulations abroad differ massively. Also, some offshore havens are less stable than others.
- It’s also important to look at the terms and conditions of an offshore bank account. Will you be charged higher fees if you fail to maintain a minimum balance, what are the fees and charges for the account and the services you may wish to utilise?
- It can be more difficult to resolve any issues that may arise with your account if you hold it offshore. This is because you cannot physically visit your branch and speak to someone in person.
We hope this open and ever developing list of the advantages and disadvantages of offshore banking will help you to make your own mind up about whether or not an offshore bank account is right for you. To understand better how you can benefit from offshore banking, read our Expat International Bank Account Guide.