The big attraction of offshore banking is that money can be deposited in a wide range of currencies, customers are usually guaranteed complete anonymity, there are no double taxation agreements, no withholding tax is payable and interest is paid tax-free. Some offshore banks also offer telephone (usually seven days a week) and internet banking.
A large number of American, British and European banks, as well as various other international financial institutions, provide offshore banking facilities in one or more locations. Most institutions offer high-interest deposit accounts for long-term savings and investment portfolios, in which funds can be deposited in any major currency. Many people living abroad keep a local account for everyday business and maintain an offshore account for international transactions and investment purposes.
Most financial experts advise investors not to rush into the expatriate life and invest their life savings in an offshore tax haven until they know what their long-term plans are.
Accounts have minimum deposits levels, which range from the equivalent of around €750 to €15,000 (e.g. £500 to £100,000) with some as high as €150,000 (£100,000). In addition to large minimum balances, accounts may also have stringent terms and conditions, such as restrictions on withdrawals or high early withdrawal penalties.
You can deposit funds on call (instant access) or for a fixed period, e.g. from 90 days to one year (usually for large sums). Interest is usually paid monthly or annually; monthly interest payments are slightly lower than annual payments, although monthly payments have the advantage of providing a regular income. There are usually no charges if a specified minimum balance is maintained.
Many accounts offer a cash card or a credit card (e.g. Mastercard or Visa) that can be used to obtain cash via ATMs world-wide.
When selecting a financial institution and offshore banking centre, your first priority should be the safety of your money. In some offshore banking centres, bank deposits are covered by a deposit protection scheme, whereby a maximum sum is guaranteed should a financial institution go to the wall (the Isle of Man, Guernsey and Jersey all have such schemes).
Unless you’re planning to bank with a major international bank (which isn’t likely to fold until the day after the end of the world), you should check the credit rating of a financial institution before depositing any money, particularly if it doesn’t provide deposit insurance. All banks have a credit rating (the highest is ‘AAA’) and a bank with a high rating will be happy to tell you (but get it in writing). You can also check the rating of an international bank or financial organisation with Moody’s Investor Service (www.moodys.com). You should be wary of institutions offering higher than average interest rates; if it looks too good to be true, it probably is!