By
Curt Matsen
The topic of offshore internet banking
is a hot one and one that is increasingly growing in popularity not
only within the consumer banking community, but also the business or
corporate banking sector.
The beauty of offshore online banking is
that in addition to enabling you to conduct banking activities allowed
by traditional and local brick and mortar
businesses, it allows you more variety and flexibility in terms of your
banking needs. For example, if you travel often, offshore online
banking gives you the flexibility to conduct business on to go from
anywhere, while ensuring that you have access to the type of currency if
you need at a time you need it.
Having said that, not all banks offer online or internet banking services
as this service costs the banks a significant amount of money.
Programming sophisticated and secure systems require the effort of
several full time computer engineers, full security and compliance
departments, as well as heavy overhead to support the service on an
ongoing basis.
Because there are so many variables involved in offering this service, offshore internet banking services vary from one financial institution
to another. Some have better systems while others have work to do. A
lot of this is predicated on the resources the bank has dedicated to
this initiative, both in terms of quantity and quality.
Opening an Offshore Bank Account
Before
diving further into this topic, I want to clarify that engaging in
offshore internet banking is not about evading taxes. It is about mitigating risk
of capital loss due to no fault of your own. So when considering a
foreign jurisdiction in which to establish an offshore bank account,
consider one that is politically stable and financially strong. In
addition, it helps to select a jurisdiction that pays an attractive interest rate
and has low to no income tax. Some of the most preferred jurisdictions
over the years have been Switzerland, Cayman Islands, Singapore, Hong
Kong and the United Arab Emirates (UAE).
Opening a personal bank
account is usually a very personal activity. With offshore internet
banking however, there are ways you can get started remotely without
having to show up to the bank's local office, saving a ton of time,
money and mainly frustration.
One such way is by visiting a local bank's branch in your domicile state, or home country.
Many big banks that offer internet banking have a multi-national
presence. Chances are good that your selected bank has a local branch
near where you live, despite being headquartered in another offshore
jurisdiction.
In other cases, there are international banks that
may not have local branches near where you live, but are willing and
able to establish an offshore bank account for you through email, snail
mail, fax and telephone. There are usually a set of documents required
by banks in order to execute this process. Therefore you can still open a
foreign bank account with
an offshore bank without having to leave your country, but it may come
with a little more effort, and sometimes the struggle involved in
communicating with someone overseas.
The Advantages of Offshore Internet Banking
Here are some advantages of offshore internet banking that you should know about.
Protection
from sovereign risk - as mention already above, parking funds in
foreign bank accounts mitigates the risk of loss of capital resulting
from freeze or confiscation of funds by Governments without any fault of
your own. This risk is less of a concern in a developed economy with a
solid banking infrastructure such as the United States, but it is
nonetheless an inherent risk that exists.
Tax benefits - many
offshore jurisdictions have low to no income tax implications on
interest income, or income from business activities.
Higher
Interest Rates - because many offshore banks operate with low costs,
they can afford to offer higher interest rates compared to larger
multi-national names. In fact, in developed economies like in Europe and
North America, regulatory compliance requirements is seen by many as
form of taxation on banks, thereby increasing overhead costs and
lowering interest rates.
On Demand Access to Statements - offshore
internet banking gives you instant access to your statements where you
can view your activities on a real time basis. This includes past and
pending deposits and withdrawals. You can therefore access your account
balance at anytime.
Money Management - with offshore internet
banking you can transfer funds between accounts across the globe
instantly. Offshore banks have inventories of various currencies and can
help you fulfill banking transactions in multiple countries. You can
schedule automatic payments to vendors to release automatically.
There
are several other advantages to offshore internet banking. You can open
offshore trading accounts and establish offshore brokerage accounts to
conduct trading and investment activity (there can be tax advantages to
this). Conducting transactions online is not only mostly free, but also
very efficient. Transaction time online is simply much less. You can
also have streams of income potentially directly deposited straight into
your offshore online bank account.
From a personal finance
perspective, downloading banking activity from your offshore online bank
account is easy and can be done instantly. Most online banking
platforms are designed to feed information into financial or personal
accounting software or to spreadsheets like Excel. Individuals can save a
significant amount on accountant fees just by utilizing this feature.
Not to mention more intimate knowledge and management of their own
finances.
For those looking for anonymity, offshore online bank
accounts also allow you to conduct banking anonymously as per bank
secrecy guidelines.
The Disadvantages of Offshore Internet Banking
Merely
establishing an offshore bank account can be a reason for the
Government to put more focus on your activities. After all, many use
offshore internet banking as a mechanism to conduct illegal activity and
evade taxes. Some specific disadvantages of offshore internet banking
as a result of conducting business through foreign bank accounts are the
following:
Knowledge of Internet - There is a certain level of
internet savvy required to be able to navigate your way through offshore
internet banking platforms to ensure you are getting exactly what you
want. This is a big reason why some elderly shy away from conducting
banking online.
Deposit Timeline - Because many banks do not have
the technology to be able to collect deposits remotely, you may have
difficulty depositing all your proceeds. While many banks have developed
electronic scanning technology, others have yet to catch up. There is
no consistency to say the least.
Security / Fraud Implications -
because banking is conducted online, offshore internet banking exposes
you to the risk of network intrusion or breach. Because information is
transferred electronically and stored in various databases, breaches can
cause private and sensitive information to leak out into the wrong
hands. But then again, this is no different than losing your check book
if compared to traditional brick and mortar banking.
Spam Mail -
offshore online banking also means that you will receive emails from the
foreign bank you have your offshore bank accounts with. Internet
predators recognize this as an opportunity for phishing, or fish for
private and sensitive information. Many times you may see an email in
your inbox from what seems like your foreign banking institution.
However it is not. These are phishing emails hoping for you to login and
enter your personal information such as login and password.
TIPS:
Here are a few tips to avoid falling for phishing scams. First, when
you receive an email from your bank, call them to verify that they sent
the email. Second, instead of opening the email they sent you, visit the
bank's website directly and see if you can conduct what's asked of you
on their site by you logging in directly rather than clicking a login
link in an email message.
Third, if you were to open the email and
click on any link in it for whatever reason, once the link takes you to
a website where you are required to enter personal information, look
for security symbols such as an https URL address or a padlock on the
lower right hand side corner of the web browser. There are other
security measures as well that can be visible spotted. Read online for
more on this topic.
Financial Security - some offshore bank
locations are not very financially secure or stable. For example, during
the global economic crisis of 2008, many savers lost money parked in
offshore bank accounts in some destinations such as Iceland. I don't
mean to scare you by any means as this situation is rare, and in most
cases those who suffer losses are compensated in some way over time.
However, know that this inherent risk exists. Always look for deposit
insurance. The bigger the allowance the better.
Credibility by
Association - as I've already mentioned, offshore internet banking has
negative connotations attached to it, often associated with money
laundering, use of illegal monies, untaxed monies and support of illegal
causes. Offshore bank accounts at times are tied to crime rings and
terrorists. What does this mean for you? Although you may engage in
offshore banking legally and legitimately, understand that there will be
closer scrutiny over you by the Governments.
Access Restrictions -
offshore banks are in destinations far away from you, therefore more
difficult and expensive to access. In many countries, communication in
person is preferred to communicating over phone, email and snail mail,
therefore internet banking can get a bit difficult and frustrating. I
see this trend slowly changing with banks understanding the need to
communicate at all levels and mediums to satisfy a global audience.
Expensive
- offshore internet banking is usually more expensive to set up and
administer and thus more accessible and feasible for those more affluent
or high income earners. It's not so much that it is expensive to open a
foreign bank account. It is not. However, many times you will need to
go through a firm that specializes in helping expatriates establish and
manage foreign bank accounts. All these activities cost money.
Internet
banking today is very convenient and is accessible to almost everyone.
For the average individual it can be a great offshore tax planning tool
to add to the mix. For those that travel, foreign internet banking can
provide all sorts of convenience, allowing one to transact anywhere and
with anyone. So if you liked what you read about offshore online banking, I highly recommend you look into it further to see how it can help you meet your objectives.
