The first thing that comes to mind when many people hear the term ‘offshore banking’ is a banking option for people that have probably obtained their money illegally. Although some people use offshore banking for those reasons, there is more to offshore banking that you should know.
Offshore banking is legal
Contrary to popular beliefs, offshore banking is absolutely legal, and anyone can open an offshore bank account. The true definition of offshore banking is an instance where individuals or companies open bank accounts with international banks outside their own country.
For instance, if you live in the U.S, you may decide to open a bank account in Marbella, Spain. If you do decide to open an offshore bank account in your country of choice, first familiarize yourself with the area tax code to avoid getting into trouble.
Offshore banks might be attractive due to protection and privacy offerings
Many international banks that are famous for offshore banking attract foreigners by offering a high level of privacy as far as finances are concerned. For example, banking regulations in most countries require people to report their funds to the relevant financial regulatory authority, especially if they have over $10,000 in their accounts. Some laws require people to provide paperwork to prove the source of funds if the transaction is more than $10,000.
Offshore bank accounts do not enforce such requirements as part of ensuring customer privacy. Sometimes governments go bankrupt, and in such situations, your money would not be safe. It would be better off in an offshore account.
Offshore accounts are a great way to maintain personal financial stability in an economic crisis
Imagine a scenario where your country is going through an economic recession. In such instances, banks may not have enough money for their clients. Having an offshore bank account with some cash set aside would provide a financial buffer or safety net that would allow you to be better prepared for economic times.
Offshore banks may offer higher interest rates and better asset protection
As noted earlier, offshore banks focus on attracting foreigners. One of the ways in which they achieve this is by providing higher interest rates on savings than your local banks. They will also allow you to hold foreign currency in your account with less friction, thus allowing for asset diversification. Another major benefit of having an offshore account is that it protects your assets from being frozen. This is especially advantageous in case you are involved in a financial lawsuit where your bank accounts are seized.
Authorities do not have financial jurisdiction beyond your country’s borders. An offshore account would ensure that you can still access some finances, allowing you to continue living comfortably.