Banking Offshore

Banking Offshore

Banking Offshore is different than retail banking through a traditional "on shore", domestic bank.

First and foremost, your access to the banks physical locations will be limited to those times when you are willing and able to visit the offshore banks jurisdication of operation.

Often times, this is done only when opening the account -- and at other times not at all. Those Banking institutions which allow clients to open non-resident accounts, or offshore accounts opened in absentia have seen a surge in popularity in recent years.

The advent of more sophisticated communication infrastructure has made the process of banking in a location outside of your country's shores a little less daunting for many. Many offshore banks and offshore financial institutions offshore online banking offshore 24/7 through web-based banking platforms.

Similarities to onshore Banking

As domestic or "onshore" banks, in a drive to save money, push more and more customers to online banking platforms and withdrawing and depositing cash through automatic teller machines (ATMS), offshore banks find themselves on equal footing with their domestic counterparts.

That said, those new to banking offshore will find some significant differences in the way offshore banks do business.

Difference between Onshore and Offshore Banks

First and foremost, many offshore banks or offshore financial companies are not "backstopped" by a given country's Central banking system. As a result, those that do "borrow short to lend long" (in other words lend out your deposits as a way of generating income) generally do so at a much lower rate than their domestic counterparts.

Domestic banks are able to gear their deposit ratios and leverage fractional reserve banking ratios to the max since they are theoretically given a backstop by many of the world's central banks, governments and governments' treasuries. Recently, of course, this has led to spectacular blowups which have fallen on the tax payers of the respective countries. It is unclear how long the tax payers in these countries will be willing and able to backstop these massive losses.

Offshore banks on the other hand, if run responsibly, often do not engage in such dramatic leveraging of their deposit base. The reason is, they are not afforded the same guarantees by the governements that host them (usually). And, in all but a few cases, most of the governments where the offshore banks are located could NOT guarantee the foreign currency deposits anyways, since they don't the foreign reserve deposits to make the depositors whole.

The result that is most obvious to the retail client is that the offshore banking client will be faced with more fees than he is probably used to. The reason, is that a well-run offshore institution, to run profitably, will need to make most of its money off of fees for things often seen as "free" or very low cost in domestic banks.

Banking Offshore Summary

Banking offshore remains attractive in spite of this due to bank secrecy and in many cases the lower tax profile and exposure to legal settlements a customer holding assets in an offshore bank will have. And, banking offshore remains a popular way to hide your assets, deal with offshore companies and nonresident companies in offshore centres, outside your tax home.