Offshore banking has long been an ominous and mysterious thing, often thought of as bank accounts for the super rich or secret spies. In reality, offshore banking is utilized by everyday folks like you and I. A very simple definition of offshore banking is simple, it literally means to hold a bank account outside of your home country. If you live in the US then it means you have an account in a country outside of the US. Most countries that offer offshore banking tend to have favorable tax laws that make them low cost operations and thus favorable for banks to operate. Favorable tax laws are sort of a two-fold benefit. The first benefit is that offshore savings accounts tend to enjoy higher interest earning rates because of the lower operating costs. Second, the favorable tax laws usually mean these countries are tax havens for outside investors. They can safely store their money in a favorable tax environment and often times pay less in taxes than they would in their home country.
Being a favorable tax haven is nice, but it is certainly not the only benefit of offshore banking. Consider that you can hold your savings in other types of currency. Holding all of your money in your own domestic currency leaves you open to a lot of risk. We diversify our investment portfolios and other asset holdings, why wouldn’t we want to have a proper mix of currencies as well? Over the past few years we have seen currencies like the US dollar strengthen significantly and other currencies like the Euro and Pound have a reverse in fortunes. Just a few years ago the opposite was the case. This easily illustrates why you need to have an even basket of currencies.
Another benefit of offshore banking is that it is easier to invest in local stocks and real estate when you have a financial presence in that country already. Due to a mixture of laws and regulations, most local governments are more lenient on people that have accounts in the country they are trying to invest within. In the US, if you want to purchase real estate and try to use money from another country as a down payment you can often be rejected or pay additional fees. However, the regulations and restrictions are far fewer if you hold savings in the US already.
As you can see there are many benefits to be had with offshore bank accounts!