Offshore banking is a popular form of holding or storing money in a foreign country. There are many benefits of offshore banking, such as better privacy for your money and protection against political or financial insecurity. Offshore banking was originated in the Channel Islands, and the majority of offshore banks are found 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 are more removed from the surrounding countries.
Not surprisingly, due to sitting in tax-friendly countries or islands, offshore banking is often associated with tax evasion. And yet, cash that is held in an offshore bank account is not in all cases protected from income tax. The same rules apply to interest gained on the capital in offshore bank accounts. Unless you have a distinct arrangement , you are likely to are required to pay income tax on the interest you make no matter where those funds are stored – in a local or offshore account.
If you live in a country where there are political tensions, or there are tensions in society, it can be a good idea to store your money in an offshore account. By retaining it in a local bank account you might risk the money being removed, frozen or becoming worthless. An additional plus point is that lots of offshore accounts provide superior rates than in the country where you live and there may be lower running costs involved. You might additionally be able to apply for an anonymous bank account which your traditional bank may not be able to offer. Until now it seems as though offshore banking offers a lot of benefits, so what are the disadvantages?
One aspect that could be less attractive to a potential customer is the fact that the funds held in an offshore account could actually be less secure. This is illustrated in the financial downturn of 2008 -9, where funds held in offshore checking accounts in Iceland was lost. However if the bank in question provides a good compensation programme, this may rescue some of the missing cash in the event of a major financial collapse. Another downside to offshore banking is that it is regularly aimed principally at people with more significant salaries. Lots of bank accounts of this kind do hold high administration fees so they may only be a good idea for you if you do have a healthy salary. However, plenty of them do offer savings options which can be accessed by consumers with normal incomes as well.