Offshore banking has a reputation of being esoteric and impractical for most people, but it has some tremendous benefits and you don’t need to be a billionaire.
May 30, 2021
By: Bobby Casey, Managing Director GWP
Most kids learn from their parents that part of being grown up, responsible and financially autonomous is having a bank account.
My jury is out on whether many were shown how to balance their checkbooks or anything that elaborate, but perhaps some of you were shown how to do that. If so, count yourself very fortunate!
So it’s time to move out and be that adult that knows so much more and better than their parents! Time to show them you were right and they were wrong! And you’re going to do that by largely making the mistakes they told you to avoid and otherwise repeating all the things you saw them do.
This is all too common, but understandable.
If your parents were good, they told you about budgeting your money and even saving your money.
If they were great, then in addition to being responsible, they told you about sound money.
If they were excellent, they told you about investing and diversification on top of everything else.
Let’s say I told you: the best way to invest is to have a diverse portfolio ranging from conservative to risky, and that most people who invest have this. Would you be surprised? Probably not.
What if I told you most folks have multiple credit cards for different reasons and uses, and this is fairly normal? Would that surprise you? Also, probably not.
What if I told you having multiple bank accounts is likewise a good practice? Perhaps the practice isn’t totally new to you, but for many people this could be the first time even hearing it. That’s to be expected, especially if you go your whole life seeing and knowing nothing else.
It makes sense, but it’s not the most intuitive thing to do. It’s like currency or a job right? You just use one currency and you just have one job… that’s totally normal. Rather, to put it more accurately, it’s been normalized.
There’s no reason why you should only be holding one currency, and there’s no reason why you shouldn’t have multiple streams of income. Likewise, there’s really no case to make for only banking with ONE financial institution.
Here are some great benefits to offshore banking. Keep in mind, it depends on where you are and the country you choose to bank in, but certainly when evaluating where to go and what your goals are, this list is something to keep in mind:
1. Foreign Investment Opportunities
You could unlock new and even better investment opportunities by moving your funds offshore. Rather than being restricted to what you have domestically, an offshore account might allow you to tap into other private hedge funds or investment portfolios you might not have access to at home.
2. Diversification in currency holdings
Holding multiple currencies helps to stabilize your accounts. Currencies are investments too. They can do well or poorly. And if you have a currency that is on shaky ground, knowing your wealth is also in a few other currencies that are much more stable, not only provides some security but liquidity in various denominations.
3. Higher Interest Rates
As you know countries like Japan had NIRP (Negative Interest Rate Policies). This means, people literally banked at a loss. Whether it’s NIRP or ZIRP (zero interest rate polices) or just a very low interest rate, there are countries with higher interest rates. Your idle money could stand to make more just by sitting somewhere else in the world!
Not all banks are created equally. Some are more stable than others. Keeping a stash in a more stable or another stable (depending on where you are) bank, you ensure you have some of your assets in institutions that are responsible. For example, if you are in the United States, the safest bank you can go to in the US is ranked 35 in the world. Maybe you want something better?
5. Economic and political stability and even prosperity
While benefiting from the upswing of countries’ economies, or their responsible policies is a remarkable selling point for offshore banking, we can’t deny the defensive or protective measures involved as well.
Regarding political stability, Russia is the most recent and relevant example. It would make sense that people in Russia or Ukraine might want to get their assets out of those banks. But it’s not just those countries that are affected by the conflict.
A recent article in Zerohedge looked into the larger banking implications, asking the simple question which banks run the greatest risk with the rising threat of sanctions on Russia?
Specifically, among other more arcane details, the sanctions relate to:
- freeze of assets,
- capabilities of certain largest Russian banks to process transactions and
- proposed ban of certain payment avenues (SWIFT).
The article looks at both the US and Europe. Perhaps it has something to do with proximity, but the US only has one bank (but it’s a big one!):
Citigroup has “material exposure, at $5.5bn, which equates to only 30bps of total global exposure for C. This breaks down as follows: $2.3bn in ICG loans, $0.7bn in GCB loans, $0.8bn of unfunded commitments, $1.6bn of investment securities, and $100mn of trading account assets (as of 3Q21).”
As for Europe, the EBA data shows that the banks with the largest exposure to Russia are (as at 06/21):
- UniCredit: Total exposure of €13.7bn (of which €1.2bn is Government, €12.6bn is Retail & Corporate) equivalent to 1.6% of total exposure.
- Société Générale: Total exposure of €14.3bn (of which €2.5bn is Government, €11.8bn is Retail & Corporate) equivalent to 1.7% of total.
- Raiffeisen Bank International: Total exposure of €14.3bn (of which €2.4bn is Government, €11.9bn is Retail & Corporate) equivalent to 9.3% of total exposure.
6. Asset Protection
While we’re on the topic of defensive or protective action of your investments and wealth, it’s not just political instability or unrest. Some systems are just dangerous for those with means. The US is a prime example. It’s the most litigious country in the world, hands down. Anyone can file a charge for a couple hundred dollars and tie up your assets in a long-drawn suit. Which unto itself is terrible, but imagine if you had your assets offshore?
That means they will have difficulty finding them, even more difficulty freezing them, and it would likely be a losing proposition to try and seize them. The privacy and confidentiality associated with having an offshore account is priceless. A properly structured offshore account with an offshore LLC or Trust provides confidentiality which simply cannot be found in any personal domestic account.
Clearly the reputation and the realities are quite different when it comes to offshore banking. It’s worth looking into for your own protection.