Offshore banking is a popular form of securing money outside of the country where you live. There are loads of advantages to offshore banking, such as increased confidentiality for your money and protection against political or financial instability. Offshore banking first existed in the Channel Islands, and most offshore banks are located in island nations. However the term is also used to refer to banks in nations like Switzerland, Andorra and Luxemboug which are not surrounded by water but are more removed from the countries around them.

Not surprisingly, due to being located in tax-friendly nations or islands, offshore banking is frequently associated with tax violation. On the other hand, capital that is stored in an offshore bank account is not in all cases protected from income tax. The same goes for interest earned on the funds in offshore bank accounts. Unless you have special dispensation , you most likely must pay income tax on the interest you gather regardless of where those funds are stored – at home or abroad.

If you live in a country where there are political tensions, or there are problems within the public, it could be precautionary to keep your assets in an offshore bank account. By retaining it in a local bank account you could be in danger of the money being removed, frozen or ending up without worth. An additional plus point is that many offshore accounts provide superior rates than in the country where you live and there may be lower account fees involved. You may additionally be able to obtain a confidential bank account which your local bank might not be able to offer. To this point it sounds as though offshore banking offers a lot of benefits, so what are the drawbacks?

One factor that may be less attractive to a prospective customer is the fact that the cash held in an offshore account could actually be less safe. This is illustrated in the global financial crisis of 2008 -9, where money sitting in offshore checking accounts in Iceland was lost. But if the bank in question offers a good compensation programme, this can rescue some of the missing cash in case of a serious financial collapse. Another drawback to offshore banking is that it is often geared primarily at people with higher incomes. Many such bank accounts do hold high upkeep costs so they might only be worthwhile for you if you do receive a healthy salary. However, lots of them do give savings options which may be accessed by people with normal incomes too.