Offshore bank accounts have had both a good and bad reputation. The good side being that travelers can easily access needed money anywhere they went, as well as the possibility of better banking rates and terms. The bad side being that the IRS and the media have targeted these types of accounts because of the way they are sometimes used to “hide” money. What exactly is an offshore bank account? What is the use of one? Would you want one? Are there issues to having one?
An offshore bank account is a financial account placed in a bank located outside of your country of residence. These accounts can be used by either business or individuals. Corporate offshore accounts are more anonymous than individual accounts. An offshore account can be set up with, or without, legal help.
There are two types of an offshore bank account: commercial and individual bank accounts. A commercial account is used by any business entity or organization either for-profit or nonprofit. An individual account can be used by any individual wanting an account outside of their own country.
Offshore bank accounts have many similar functions to regular bank accounts. You can use them as checking or savings accounts; you can send and receive money orders, wire transfers, or bank drafts; some accounts come with credit cards and online services. You can also exchange currency through your account.
Some of the most sought-after features of offshore bank accounts often make them seem more shady than they are. One commonly used feature is the lower tax rates for having your money in another country. Another feature is the privacy because most offshore banks do not need to know much information about the account holder, nor do they release much information. Another feature, which is helpful in the import/export trade, is the ability to pay with funds from local currency to avoid exchange rates and tariffs.
While holding an offshore bank account can have many advantages, it can have disadvantages as well. Here in the U.S., your money is guaranteed by the FDIC; this is not the case with an offshore bank account. Your account is subject to the laws of the host nation where the account is. Another disadvantage is that if your reason for setting up the account is illegal, the money can still be seized by both the host country and your resident country.