Ben Todd | Apr 16, 2017 | 3
The Complete Guide to Offshore Banking
This guide covers how you put your money into banks and institutions around the world and is a good primer to the world of offshore banking.
As a disclaimer, this is not financial advice, nor does this article instruct you in any way. It is simply information that you may take or leave. We are not responsible for any gains or losses, nor are we responsible for what you do with this information.
Note that with the recent Panama Papers revelation in 2016 that’s taken the world by storm, there’s a LOT more scrutiny on offshore banking and it’s very likely that banking regulations (especially in the EU and North America) will undergo changes to make it more difficult to ‘hide’ money.
Hiding Your Money Overseas…Offshore Bank Accounts?
If you are thinking about offshore banking to remain anonymous, then you may be disappointed. For example, if you are looking into a tax scam where you hope to hide money from your own government, then it is very difficult.
The first reason it is difficult is because the US and Europe have signed deals with independent banks that allows them to look into peoples accounts, which means your secret Swiss or Cuban bank account is not as secret as you thought it was.
The second reason is because the US and UK (especially) have sophisticated monitoring technology that gives them secret and semi-legal access to computers around the world. This means your secret money is rarely as secret or safe as you would like.
You should also remember that some companies and banks are not as stable or secure abroad. There are some banks that will take your money and you have no legitimate way of getting it back or punishing those that stole from you.
When Is It A Good Idea To Put Money Abroad?
Some people do it because they earn better interest abroad. Some do it because it is safer in foreign banks. Some do it because they want to keep a certain amount in a certain currency, and some do it to hide their money from loved ones or business partners. Some people put money in offshore accounts so they may legally buy things or spend money. For example, some put money into foreign accounts so they may play online poker. Some people travel abroad frequently to the point where it is cheaper to keep money in a certain currency in a certain country.
A government agency may easily discover the money you have hidden, but even with a good lawyer, there is no way your spouse or business partner will find out where you have hidden your money.
How Much Do You Have To Deposit?
There are many offshore banks that will require a substantial first deposit before they allow you to open an account. Even banks that allow their home-turf citizens to open account for free may still demand that you make a $1000+ deposit before opening your account. Do your research into how much deposit you need to pay before you start making plans to open your account.
How Much Are The Fees?
They are going to vary from bank to bank and from country to country. There are some banks that will charge you higher fees because you are not living in the country where the bank is located. Standard bank fees are not so much of a worry. Your main concern should be partially hidden fees, such as withdrawal and transaction fees.
What About Tax In The Offshore Bank’s Country?
In most cases, you are going to have to pay tax on the interest you make. There are few countries that will allow you to earn interest in their country without paying tax. You need to double and triple check to see if you will need to pay tax, and how much you will need to pay. If a country does not impose tax in the interest you earn, then you have to ask yourself why. Is it because the banks and/or the country is going to go bust at some point soon?
International Banking Insurance
Most developed countries have some sort of regulatory body that protects your money with a form of insurance. In the US, it is the FDIC (Deposit Insurance Coverage), and in the UK, it is the FSCS (Financial Services Compensation Scheme).
If you lose money up to a certain amount through fraud and other things of that nature, there is a good chance they will refund and/or replace your money up to a certain point. The banks and companies that do “not” offer this sort of protection are often able to offer higher rates of interest.
Can I Use Online Banking?
There are very few legitimate offshore banks that only operate offline. There are still some, but most offshore banks will have an online banking option. This means you can conduct transactions and check your account online. There are certain restrictions with some countries where you are not allowed to access your bank websites, but most people use VPN (virtual private network) services to get around that.
For example, if you have an account in China and they won’t let you access your account from the US, you use a VPN service and use a server in China. The bank’s computers think you are browsing from China, so they allow you access to your bank account.
Legitimate Banks Will Undertake Due Diligence
This means they will need proof of your identity and where you are getting your money from. If you are looking for a sneaky bank where you are looking to hide money from the government, then they will be less interested in due diligence matters. If a bank is offering you a seemingly unreasonable amount of security and privacy, then be wary. There are many legal factions and many government factions that are unable to find out if you have cash hidden abroad, but most developed countries have aggressive ways of finding out how much money you have sent abroad.
Do not forget that shady and illegitimate banks are not just for people trying to hide money. Many times, they are used by scammers to collect money from the people they have swindled. This leaves the banks in a very precarious position where sometimes it is better to close down rather than take the heat from the government authorities that are coming after them. These banks are often brass plate banks, where it is in their interest to close down and set up somewhere else rather that face police and government problems and pressure.
Brass plate banks are banks with very few assets and often with very few staff members. They sometimes only deal with foreigners, and many times, they are not open to the public. They are usually located in offices.
Ask Directly If The Bank Will Do What You Need
You can read all the small print, but it is often better to ask questions outright, rather than try to find an answer in their paperwork. The reason is because sometimes they do not mention things in their paperwork. Sometimes they have their own unwritten rules, or their own policies that are not clearly explained or defined in their paperwork.
For example, you may wish to make purchases in countries that your government has imposed sanctions on. The country in which you have opened your account may not have such sanctions, and so you may feel safe in buying the products. However, the offshore bank may not allow you to make such purchases because “your” country has imposed sanctions and the bank doesn’t want to appear complicit in your breaking of “your” country’s law.
Another common example is where people set up offshore accounts so they may gamble online. They then discover that even though the offshore bank is in a country where online gambling is legal, they will not allow your bank account to be used for online gambling (even though they allow their other bank users to gamble online).
Ask their customer service department and/or their advisors if they are able to fulfill your needs before you open your account. Try to get something in writing too, such as a confirmation by email. This is because it is not uncommon for banks to tell you that they allow online gambling with your account, but then decide they do not because they didn’t check which country you live in. Or, they say you are allowed to gamble online, but only allow you to gamble on certain websites and freeze your account when they see deposits made to other gambling companies.
Canada Is A Good Place To Start
Have you considered Canada as your first place for an offshore bank. If Canadian banks meet your needs, it is very easy to get an account. You can take a trip up there with your paperwork and open an account by walking into a branch. Usually, it is as easy as that if you are from the US or Europe. Check to see what information and documents you need to take, and walk into a branch to open an account.
There are numerous other European countries where it is just as easy to open an offshore account, but Canada is closer, and their banks are very accustomed to opening accounts for people from the US. Just be sure to get an appointment prior to making your trip because some banks will insist on an appointment.
Opening Your Account Online
There are a great many banks that will allow you to open an account online, but you have to be very careful when you do it. For example, you may take the example above and decide to open an account in Canada. You look it up on the Internet and see that it says, “Open an account here” or something similar. So, you click to open your account and it goes through, and all seems okay…right?
Wrong. Some banks will require a personal visit in order to open an account. Some banks (legitimate ones) will need to see you in person to open an account. If they allow you to open one online, it may be that you have actually opened an account with a US branch or with a partner of the bank (which is not what you wanted).
Some banks will allow you to partially open your account online. They will then ask for a visit at some point, or they will send you applications in the mail or via email. You may have to photocopy or scan certain documents, and provide access to your information in your own country, and the process can take between two weeks and a month.
Credit Cards And Your Credit Rating
Your credit rating is a tricky business. Sometimes it is all about your credit rating in the country where you have opened your account, and sometimes your credit rating appears to merge with that of your own country. As for credit cards, those too are a trick subject when it comes to your credit rating. Usually, they have a positive effect on your credit rating if you pay them off quickly. However, if you gamble with them, they may be viewed as irregular use and may affect your ability to get further credit. This applies to credit cards you get domestically and overseas. There are also many banks that will not allow you to gamble with the money from your credit card, and some may freeze your account if they see you making deposits to gambling websites with your credit card.
Banks That Demand A Large Turnover
There are some banks that will allow you to open an account on the understanding that your account will turnover a certain amount of money every term (usually every year). If the amount of turnover they ask for is a large amount, it is highly recommended that you open the account in person. It is mostly a security issue, since you want to be as sure as possible that the bank is real, and that you are passing your information (and eventually your money) over to the right people.
Do I Need A Minimum Balance?
There are some banks that will require you to maintain a minimum balance in your account. If you do not, then you are charged either a higher fee than your usual fee, or a cumulative charge fee (the same as if you overdraw your bank balance). The bank may offer free overseas accounts, but start charging you a fee if you do not maintain a certain set of minimum balances.
A List Of Commonly Used Countries
To finish the article, here is a list of countries. These countries are the most popular countries where people from the US store their money.
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Check out our article about the best offshore bank accounts.
These are the places that you may like to open an offshore bank account if you are a US citizen.
- Hong Kong
- Labuan, Malaysia
- Turks and Caicos Islands
- Channel Islands (Jersey and Guernsey)
- Isle of Man
- Cook Islands
- Saint Kitts and Nevis
- Cayman Islands
- British Virgin Islands