Have you ever wondered what the difference between having a domestic bank account and an overseas bank account is? Well, there are a lot of differences, and we will examine some on them here.
For the majority of us, the idea of opening a bank account overseas and putting our money in a bank located in some out-of-the-way country sounds incredibly shady; however, not all offshoring is bad or done for tax avoidances. According to a FAQ from the ICIJ (International Consortium of Investigative Journalists) "There are legitimate reasons to create a company in an offshore jurisdiction, and many people declare them to their tax authorities when that is required."
But what are these legitimate reasons? Well, there are several practical reasons why opening an offshore bank account would be beneficial both to you and/or your business, not related to tax avoidance.
Here are our top seven reasons why you need to open an overseas bank account now.
#1 To Reduce Any Political Risks
The biggest risk that you could face in today’s economy is not financial or market risk - and these risks are pretty big. It is the political risks you could face from your own government. As Witold j. Henisz explains in the Harvard Business Review, “the risk that a government will discriminatorily change the laws, regulations, or contracts governing an investment—or will fail to enforce them—in a way that reduces an investor’s financial returns is what we call “policy risk.” And as recent data has shown that policy or political risks have increased dramatically, to put it bluntly, European and US banks are probably insolvent which can be a significant threat to your savings.
As unhealthy banks keep growing, we should expect more bail-ins (as seen in Cyprus), retirement savings being nationalized (as seen in Poland, Portugal, Hungary, and Argentina), bank deposit taxes (as seen in Spain) and capital controls (as seen in Iceland) and other possible harsh actions.
#2 Offshore Banking Systems are Healthier
We’ve already talked about how unstable the banks in Western countries are and how they have all (or most banks) reached the maximum extent to utilize borrowed funds, backed up by corrupt and insolvent governments. Unfortunately, the majority of these banks only keep a small amount of cash ready for customers meet their withdrawal requests.
If you want to avoid going through another Lehman-style crisis, you should find a bank in a country with little debt and a strong history of stability proving that they don’t gamble with your money, have good liquidity and are generally much better capitalized than Western banks.
#3 Better Asset Protection
Foreign banks are what their name suggests-foreign. And while they cannot guarantee 100% asset protection, an overseas bank account can definitely make you a harder target as your local government does not control them. If you ever find yourself in a bad position with the government, they won’t be able to freeze your account.
Having an offshore bank account is the best way to keep some savings out of your government’s immediate control.
#4 Easier to Diversify Your Currency Exposure
Being able to hold foreign currencies is another way to reduce the risk in your savings, internationalize your portfolio and also protect your purchasing power. Usually, domestic banks do not offer various options to diversify your currency exposure; however, overseas bank accounts are the most convenient way to hold several foreign currencies.
For example, if you want to get out of the euro - for stronger purchasing power - by having an overseas bank account in Hong Kong you have several options for diversifying your savings into different currencies such as Singapore dollars, Chinese renminbi or even Aussie dollars.
#5 Higher Interest Rates
One of the most well-known reasons for opening an overseas bank account is high-interest rates. Recent news reports have shown that the Fed and the European Central Bank have set their interest rates extremely low. In some cases, negative interest rates have been implemented. So not only will your savings stay the same, but they will be decreased with your bank making money from your wealth.
The higher interest rates that offshore banks provide will have an immediate effect by offering you better returns on your deposits and investments.
#6 Have Medical Access Abroad
We live in a world where medical care and treatment is something that affects everyone in the world, and an overseas bank account can ensure access to health care abroad, too.
For example, in the dramatic scenario where you are denied or delayed treatment in your home country or any other reason you chose to be treated abroad you will have to pay for your medical care. You will have to transfer money abroad and pay for all your expenses. But, most medical bills are massively overcharged so you will have to transfer huge amounts of money to an overseas bank account.
But if your home country imposed capital controls, it could be impossible or very difficult to transfer a substantial amount of money to pay your medical expenses. This is where already having an overseas bank account may prove to be useful and ensure that you have easy access to money when you need it the most.
#7 Be Proactive
When talking about international diversification, it is always wise to be proactive in your investments and follow the famous motto “the early bird catches the worm” and avoid capital controls, or it might be too late to save your money. By opening an offshore bank account, you are acting quickly and protecting your savings before anything bad happens.
The benefit of having a bank account outside of your home country will give you the option of transferring money abroad, should the need arise since unfortunately, most banks in the Western world are very unstable and unhealthy.
It is no secret that it’s becoming harder and harder to open a bank account overseas and who knows, maybe soon it could be impossible. We are therefore advising you to act sooner than later and get one for the numerous benefits mentioned above even if you don’t plan to use your bank account right now.
Even if your government or banks do not impose capital controls or have other strict monetary measures, you definitely won’t damage your savings by offering them a safer home - or a number of safe homes. Opening an offshore bank account is a wise step, no matter your plans.
Regardless of the negative connotations associated with offshore banking, it is an entirely legal process and does not mean you will engage in tax evasion or other illegal activities. You are reducing any possible political risks by taking care of your savings in well-capitalized institutions all over the world.
It is one of the safest and wisest things you can do with your savings right now.