Pros And Cons Of Offshore Accounts

Offshore accounts are the bank accounts in certain countries that have an advanced banking system and offer more tax benefits. The term 'offshore account' originally referred to the bank accounts of British people in the Channel Islands. But at present, several countries provide offshore banking service. A majority of these countries are islands. Bahamas, Bermuda, Cayman Islands, Mauritius, and Barbados, Switzerland, Luxemburg, and Liechtenstein are some of the popular European offshore destinations.

Most people are of the opinion that offshore accounts are the exclusive domain of the super rich of the world for evading tax from their country of domicile. However, this is not true. Most of the offshore banks offer several tax advantages; they do not encourage black money or illegal financial activities. Their rules and regulations are also strict, particularly after global concern over terrorist funding. Still, overall, these accounts have both advantages and disadvantages.

A major advantage of offshore banks is the stability of these institutions. As you must be already aware, the recent sub-prime crisis and the resultant financial meltdown triggered the collapse of several big financial behemoths. A number of people lost their money because of this unprecedented economic recession. But there have been no reports on the collapse of any offshore banks. Financial analysts feel that this is unlikely to happen as most of these banks sit on huge cash reserves. So, an offshore account is a good option for any individual who lives in a country with unstable economy.

Most of the offshore banks provide a better interest rate than normal banks do. So, the investor is likely to gain more money out of the investment. There are a number of tax benefits too. In most cases, taxes need to be paid only at the time of withdrawal. So, this is an excellent option for deferring tax payment.

All offshore financial institutions make elaborate arrangements for ensuring the privacy and secrecy of their investors. These banks do not reveal the identity of the investor in normal circumstances. As a result, many wealthy individuals facing legal troubles or fearing governmental action opt for offshore accounts. A government or a court cannot freeze their accounts.

Offshore banks offer all kinds of activities in the financial spectrum, including loans, retirement plans, and hedge funds. They also offer various kinds of bank accounts such as easy access accounts, notice accounts, fixed rate accounts, and monthly interest accounts. Offshore accounts are available to people of almost all countries. Also, these are multi-currency accounts. That is, one can deposit or withdraw money in most of the widely used global currencies from anywhere in the world.

Most of the disadvantages of these accounts are related more about with the effects on the social and economic scenario of the world than with the inconvenience of the end-user. There are allegations that these banks indirectly and inadvertently help underground financial activities of terrorists and tax evaders. The only inconvenience for the account holder may be the traveling to the country where the bank is, if he or she needs to be physically present at the bank. However, thanks to information technology, such instances have become very rare in the case of offshore accounts.

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