Offshore banking can offer added benefits to your financial needs, offering greater security, diversification, service and stability than their onshore counterparts. Contrary to stereotype, it is in no way illegal — but “hiding” your money is! As with most financial institutions, it is only illegitimate if you choose to use them in that way.
Keeping money offshore is a perfectly legal option to reduce risk and diversify your wealth, although you may have a tainted view of stories such as the Panama Papers. In reality, it’s as plain as banking can be, yet offers different benefits to you as a client wanting to efficiently manage your money. Many countries offer offshore alternatives, with their own regulations, yet aim to achieve the same benefits. And, no, offshore is not just for the wealthy — far from it; they can be a great opportunity to legally diversify and further protect your finances.
Here are some things they offer:
- Diversification
- Security
- Service
- Tax-Efficiency
- Foreign Exchange Services
Diversification
There are many benefits to spreading your wealth across various financial instruments, institutions, assets and investments (without over-diversifying), and holding a percentage of your funds in an offshore account fits snugly into that framework. Keeping all of your eggs in one basket is never a good idea when it comes to managing investment risk, and that applies to the very banks we choose to keep our money in.
Since offshore accounts like these work without any tie to a jurisdiction under an international/offshore license, they can provide financial and legal benefits to the holder compared to an onshore bank, or by investing funds. Spreading your wealth to a different account like this helps mitigate risk as a part of diversification, as well as many added benefits as we will see further.
Security
Your local bank isn’t as safe as you think (nor the best for investments), but also that it is subject to political risk and are a target for governments who might need bailing of their own financial woes, as was the case in Cyprus. Offshore banks can employ stricter due diligence to keep themselves secure and safe for their customers, can be shielded by economic and political instability, and can offer more confidentiality.
Foreign jurisdictions cannot come in and force these banks to do anything, unlike those onshore, adding a layer to their security and privacy, which is taken seriously. Information can be shared to counter-terrorism and fraudulent activity, but if you’re not looking to be a criminal, what’s the harm in that? More and more offshore locations are highly regulated and transparent, offering peace of mind to your money whilst protecting it from political threats.
Service
Offshore banks are not weighed down by jurisdictional rules, helping to provide a greater and more personalised service, often running a 24/7 service, operating all year round and completely online in this digital age. You may even have a relationship manager as your contact to help ease your experience or to handle more complex matters.
Convenience is another bonus, especially to those who move around and need to manage finances in one place, rather than opening bank accounts in each place and victim to each jurisdiction’s own rules, political risk and local banking rules, which could strain your finances.
Tax-Efficiency
Keeping your funds offshore may help (legally) alleviate tax burdens in your home or current country of residence. It may not be wise to bring all your wealth to a new country, as you will be liable to their tax rules; however, this may work favourably for places that have different rules on tax. You are entitled to manage your wealth in this way and can be especially useful for those frequently moving countries or for those being paid from freelance work, for example.
Furthermore, those who don’t pay tax on foreign-sourced income could benefit from investment returns from offshore platforms. As always, make sure you do your research on tax so that you don’t get caught out!
Foreign Exchange Services
An important service offered by offshore banks offers multi-currency accounts with competitive rates that can be managed quickly and efficiently, great for those with international financial needs. If you have streams of income in different currencies, you can easily manage payments under one account at the same time as benefiting from the other perks of an offshore account.
Holding just one currency isn’t advisable, especially if a currency is volatile and prone to fluctuations, as well as the aforementioned political risk of a country affecting its money. You may also use this to enact investments in foreign funds or access a stronger currency from your country of origin as part of the extended services of an offshore bank.
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An offshore bank can be a fantastic way to diversify your wealth and enhance your personal financial strategy. It is not necessarily a must for everyone, but certainly worth looking into; as always, due your own due diligence on an account that may be suitable for you as an extension of your financial planning. You may find your local bank account has an offshore division which could be a good place to start, although arguably banking at a different institution may benefit your diversification.
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