Pros of Offshore Banking
Political, economic and regulatory stability
Offshore banks are generally sited in locations that are known for their political, economic and regulatory stability (including stable inheritance laws). This allows customers the freedom to make long-range investment and inheritance plans. They also get the freedom to invest or dispose of their funds in the manner they best see fit.
An offshore bank account can give you the convenience and flexibility, you may have found lacking in standard banking accounts, at many levels. If, for instance, you are a frequent global traveler or someone who moves from country to country on work assignments you would love the convenience afforded by multiple currency accounts.
With this service, you can set up accounts to cover payments you need to make back in your home country, everyday expenses in your resident country, and any travel you do overseas – without losing any money through currency conversion fees. You may also be able to obtain debit and credit cards linked to different currencies.
You also get the convenience of investing in global markets, the convenience of investing in products that may not be available in your resident country and even the flexibility of customizing your own portfolios.
Offshore banking jurisdictions offer high rates of tax incentives to customers. Such incentives both attract customers and promote a healthy investment environment that attracts outside wealth. Benefits may range from very low to no rates of tax on income earned through investments in an offshore account.
Such income may also not be subject to tax in the customer’s country of residence unless it is transferred to the resident country. Capital gains tax is also usually absent. Offshore accounts tied to trusts or companies can also be used for the legitimate avoidance of estate and inheritance taxes upon death.
Offshore jurisdictions offer their customers higher levels of privacy and data confidentiality than standard banks. For anyone wishing to protect their assets from unfair or speculative litigious behavior for instance, an offshore bank account can be a very handy tool.
Cons of Offshore Banking
Retail banking customers usually fall within the scope of a depositor compensation scheme run by their country’s banking regulator which would cover current, savings and deposit accounts. Such a cover is generally not available to most offshore banking customers and products.
No guaranteed returns
Investment portfolios operated by offshore banks do not provide guaranteed or even targeted returns. Risk factors that can lower returns or even send portfolios into loss are an ever present element. All the more so, especially when an investment portfolio is built with an expectation of beating the market.
Offshore banks often require a high minimum deposit. You may also be required to maintain a sizeable minimum balance in the account at all times. They may also have high fee requirements that range from anywhere between 1% to 2% of all assets under management. On portfolios that range in value from hundreds of thousands to millions of dollars this is far from being an insignificant sum.