Introduction to Offshore banking

In financial services the term offshore comes originally from the Channel Islands, which are off shore from mainland Britain. These Crown Dependencies have always maintained certain fiscal and taxation autonomy to the United Kingdom, and were among the first jurisdictions to be referred to as offshore financial centers. Today there are about 70 offshore financial centres in the world, as defined by the likes of the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD). However, if you choose to bank in any jurisdiction other than the one in which youre living, yours could be considered an offshore bank account. Banking offshore has many potential benefits; particularly for certain demographic groups such as expatriates for example. Others who may benefit include those seeking flexible company bank accounts, those seeking privacy of their assets and transactions, and anyone who requires an international account.

Types of offshore bank Accounts

Before you moved abroad you may have thought that a bank account was a bank account i.e., that there were few if any variations on the current account theme! However, as soon as you move abroad and begin contemplating how youre going to manage your money, you may well discover that there are different types of offshore bank account to choose from. Some are actually just the repackaging of a plain vanilla current account jazzed up to catch your eye! Others have very real and clearly definable advantages that some expatriates or international businesspersons may be looking for. In terms of the different types of offshore bank account you can access they include international accounts, multi-currency accounts and business bank accounts. Some banks then offer different levels of bank account from a premium or premier account to a simple current account. So which one is most suitable for you?

An International Bank Account

Nowadays most legitimate offshore banks, such as the international arms of all the high street banks in the UK, have re-branded their personal accounts as international bank accounts rather than offshore bank accounts.This is simply because the term offshore has unfortunate illegal and immoral connotations.Therefore an international account is simply the new name for an offshore bank account in the majority of cases.For expatriates an international bank account is the most frequently chosen and utilised type of bank account. The word international sums up the true flexibility of this type of account.Its an account type that allows account holders to access their funds no matter where they are in the world. This can be done with an international ATM/debit card, online or over the phone to a 24/7 call centre service. If such accounts are being directly marketed to expatriates, then they often come with additional features such as having an international wealth or account manager assigned to a client to assist

with investment services for example.Such accounts are often offered in different currencies, interest is paid without the deduction of taxation, and international monetary transfers are easy to achieve.

Premium or Plain Vanilla?

As stated, many banks offer a couple or a few variations on their simple international bank account for expats. HSBC have a premier or an advance account for example, Barclays has iBank Plus or iBank accounts The differences are in the features, fees and minimum account balances. The more advanced a bank account, generally the greater the so-called relationship balance a client has to maintain with a bank. For example, you may have to have tens of thousands of pounds banked, saved, invested or on a mortgage with a given bank to have access to their premier international account.With this account you may enjoy low or no charges, special features and benefits such as international airport lounge access or international travel insurance for example. However, because globally most investor protection schemes only protect up to a certain account balance per institution, and as anyone knows having all your fiscal eggs in one basket is never a good idea, you may opt to go for a less premium account type.Generally speaking, the less advanced your international bank account, the more you will pay for the services on offer. When choosing an account look at the institution/s you favour and compare and contrast account terms and fees with proposed benefits. And finally, do not be seduced by all the bells and whistles of an advanced bank account if you wont actually utilise any of the free benefits being sold as reasons to choose such an account.

A Multi-Currency Offshore Bank Account

Whilst the vast majority of international accounts come in a choice of currency, some expats and international businesspersons need to bank and transact in more than one currency. In the past such individuals have quickly incurred high charges for international transfers, and suffered fees and also losses when transferring between currencies.The globalisation of banking business has led to the creation of multi-currency offshore bank accounts. These are single accounts beneath which an account holder can have multiple strands, each in a different currency. So, an account holder can have a euro account, a sterling account and a dollar account all beneath one multi-currency offshore bank account number for example.These accounts are specifically designed for those who need to move money between countries and currencies and they may come with preferential rates of exchange, lower or no fees for international transfers etc.Their basic structure will be the same as plain vanilla offshore or international bank account, but they will be much more suitable for anyone who has to manage their money across different currencies and countries. Not all banks offer multi-currency bank accounts, therefore if you specifically require one, do enquire directly with your preferred institution/s. Whats more, not all banks offer the range of currencies you may require.

Its worth noting that some banks offer different rates of interest on the different currencies too, so an account holder will need to keep an eye on their account balance to ensure it is correctly spread between currencies to enjoy the best interest rates possible. Account fees and minimum balances usually apply; additionally you may find that you still get better rates of exchange and/or lower fees for moving money around the world from dedicated currency brokers rather than your bank.

Offshore Business Bank Account

With the development of the Internet, nowadays so many companies literally have a global presence and have found themselves doing transactions with individuals and companies around the world. This means that even sole traders can have a requirement for an international business bank account. In the past only global corporations had a legitimate need for an offshore bank account, nowadays anyone can have one and anyone can potentially benefit from one. Another reason why some directors choose to have an offshore business bank account is because if theyve been made bankrupt in their home country they cannot have a company account. However, they can potentially have an offshore account for their company as they will not have been made bankrupt in the jurisdiction in which the account is being opened. Tax benefits can also be a legitimate reason for opening an offshore business bank account for some people for example, those who can reside in a country 100% free of tax as long as they dont do business in that nation can instead operate their company offshore. Such accounts usually have the same features and flexibility of an international current account, but all will carry fees and charges. It will also be critically important to choose a legitimate jurisdiction which customers and clients will feel comfortable sending money to or receiving funds from.

Private Offshore Bank Account

The final type of offshore bank account to mention is a private bank account. These are usually accounts offered exclusively to high net worth individuals or wealthy companies, which receive a personal introduction to an exclusive institution. With the streamlining of services and the removal of the personal bank account manager for example, all banks are now pretty much the same in terms of the customer service levels they offer. However, some clients require a much more personal and hands on approach to the management of their financial affairs. A private bank account can be ideal for such an individual. They will benefit from having their own personal named banker, with whom they will have a direct business relationship. The personal banker will handle the management and even investment of their portfolio for example.

Advantages of offshore banking

If you are looking for ways to earn income from your investments, you might consider looking into offshore banking. While some people think of offshore banking as being an illegal activity, it actually is completely legal. Offshore banking explained is opening up an account in a bank in a country that you do not reside in. You, of course, would have a bank account in the country you live but you would open up another account in a country that is not your home country. The reason some people choose to open up these accounts in other countries is that they see the benefits of having them because money in these accounts earn interest. Many countries offer higher interest rates in hopes of drawing new international banking customers. They may depend on the income that they can receive from people opening new accounts in their country. For this reason, they offer competitive interest rates. Countries who have high interest rates often have strict privacy laws as well. No one wants to invest their money if anyone can poke into their business and find out how much money they are holding in their international account. Most countries that have good offshore banking systems offer very strict privacy laws so that investors can put their money into a checking or savings account without anyone knowing about it. And it is always a good idea to have your money spread out in more than one bank just in case you need to get access to it and you have trouble at one bank. Another benefit of opening an account for banking offshore is the fact that it gives you ready access to your money if you have to be out of the country that you live in. If you are a frequent traveler, it is a good idea to have an account in a country you visit often. If you have an account in a country you visit often, you will not have to worry about getting wire transfers or waiting for your money through any other means. It can be time consuming and difficult to get access to your money when you are out of the country. It is dangerous to carry a lot of money with you when you leave your home country because you can be robbed, or it can be lost. You definitely dont want to depend on carrying enough cash with you when you are away because a difficult situation may arise when you need more money. When investors choose a country to invest their money, they usually find a good offshore banking guide. A quality offshore guide will provide guidance and suggestions on the countries which it is best to invest your money. Not all foreign countries have equal banking systems. Therefore, it is prudent that investors do their research before opening a bank account in any foreign country. You might want to see if you have any friends or acquaintances who can offer offshore banking advice. They may be able to help you decide if offshore banking would be of benefit to you in your unique situation.

Disadvantages of offshore banking

Historically banking offshore is arguably more risky than banking onshore. This is demonstrated when examining the fallout from the Kaupthing Singer and Friedlander collapse on the Isle of Man. Those onshore in the UK who were affected locally by the nationalisation of the banks parent

company in Iceland received full compensation. Those who had deposits remotely in offshore accounts in the Isle of Man were lucky if they were repaid the 50,000 guaranteed by the depositor protection scheme.

The term offshore has become synonymous with illegal and immoral money laundering and tax evasion activity. Therefore conceivably anyone with an offshore bank account could be tarred, by some, with the same brush even though their offshore banking activity is wholly legitimate. You have to choose your offshore jurisdiction carefully. Whilst you may well be aware of how the banking industry operates in your own home nation and how it is regulated, the rules and regulations abroad differ massively. Also, some offshore havens are less stable than others.

Its also important to look at the terms and conditions of an offshore bank account. Will you be charged higher fees if you fail to maintain a minimum balance, what are the fees and charges for the account and the services you may wish to utilise? It can be more difficult to resolve any issues that may arise with your account if you hold it offshore. This is because you cannot physically visit your branch and speak to someone in person. There are fewer advantages to banking offshore today than there were just 10 years ago therefore unless youre specifically seeking flexibility for example, an offshore bank account may be overkill for your financial circumstances.

Offshore banking Centers

In international banking network international and regional offshore banking centers (OBC) play important role in encouraging investment. Offshore banking centers offer special advantages and aim to attract investment by the non-resident individuals. OBCs are countries and jurisdictions where international financial institutions are exempted from various regulations that are applied to the domestic banking, such as deposits are exempted from reserve requirement obligations and banking transactions are tax-free. For instance, in Singapore offshore banking sector that is primarily represented by Asian Currency Units (ACU) is exempted from wide range of regulations, requirement and controls, such as minimum reserve requirements imposed by Monetary Authority of Singapore and investment controls that restrict Singapore banks to invest in single project or piece of asset excessively. In addition at OBCs banks are subject to weak information disclosure requirements. There are tree main types of offshore banking centers based on sources and uses of funds, liquidity of markets and nature of transactions they conduct:

Primary OBCs major global banking centers with highly liquid regional markets and with available sources and uses of funds. OBCs of such caliber are Japanese Offshore Market (JOM), London and US International Banking Facilities. Secondary OBCs unlike primary OBCs they only conduct intermediation of funds in the region they operate. Such OBCs are Hong Kong, Singapore, Bahrain, Lebanon, Panama, etc. Booking OBCs such offshore banking centers do not conduct intermediation of funds, but they serve as registries for those transactions that were conducted in other OBCs. Under this category can be classified Caribbean OBCs. Offshore banking institutions most maintain business relations with other financial institutions and conduct wholesale banking/financial business in any currency other that the one of the country, where OBC is located. Offshore banking is conduct primarily through special establishments often referred as offshore banking units (OBU) that typically are integral part of a bank and have separate balance sheet, is exempted from certain requirements and can conduct business only with nonresidents. OBUs accumulate funds from regions with excess liquidity and intermediate to the regions with deficient liquidity as parent company dictates. For instance, Singapore (regional OBC) ACUs are established to engage in Asian Dollar Market. What ACUs do is the following: they accumulate funds (deposits) from sources other than Singapore and intermediate them to the borrowers from the countries of the region. On the other hand, Domestic Banking Units (DBU) of Singapore is kept separate from these transactions. Moreover, although both this units are parts of one commercial bank, they have separate balance sheets.