How to compare offshore bank accounts

An offshore bank account can provide access to foreign currencies or financial products not available in Canada, along with more privacy and the potential to minimize taxes. But managing a foreign account can be complicated.

Are offshore accounts illegal?

No, it’s not illegal to have an offshore account. But failing to accurately declare overseas income — or using such an account to avoid declaring your income — is illegal. Tax specialists and other financial advisers can help you leverage an offshore account and navigate tax law.

But other, less complicated tools are also available:

• International banks. A bank that does business outside Canada can be an easy way to conduct your banking needs overseas.
• Multicurrency accounts. Select accounts allow you to hold and transfer cash among multiple currencies.
• Borderless accounts. Money transfer specialists like TransferWise offer a suite of services for borderless business.
• International currency transfers. Send money overseas and convert currency — with lower rates than bank transfers.

How do I compare offshore accounts?

When comparing offshore accounts, look specifically for benefits that include:

• A beneficial tax environment. An offshore bank account typically is set up in a country that imposes a lower tax rate on investment income than Canada does.
• Strict confidentiality. Overseas bank accounts tend to enforce strict privacy policies that prohibit divulging details of its clients to third parties.
• Flexible accessibility. An offshore account should allow for quick investment decisions. Not all accounts allow for easy access to foreign exchange, so first consider where you’ll make most of your investments.
• High interest rates. Your offshore account will likely function as a savings account, paying you interest on your balance. Confirm that you’ll get the strongest rate you’re eligible for.
• Multicurrency availability. Offshore banking should provide the ability to conduct business in multiple currencies from one account.
• Global transfers. Look for an account that allows for easy transfers among your worldwide accounts.

Compare interest rates around the world

When you open a high-interest savings account in Canada, you usually find interest rates ranging from less than 1% to 2.5%. But while you can find considerably higher returns overseas, it comes with risk.

For example, an interest rate of 16.00% on that account in Venezuela may sound great. But not when you consider the country’s inflation, which could hit 1,000,000%. Your investment could be nearly worthless in a year from now when you factor in inflation.

Other factors to consider when choosing an account include:

• Exchange rates. Look for a bank with strong exchange rates. Otherwise, you could lose a significant amount of money when you withdraw or deposit Canadian dollars.
• Inflation. Lower inflation can result in stronger returns, while high inflation can detract from the value of your investment.
• S&P rating. A county’s long-term credit rating from Standard & Poor’s reflects the current economic climate and financial stability. A high AAA grade indicates a stable economy, BBB grades are riskier and anything below that is regarded as fairly speculative and high risk. Keeping your money in an unstable country is a bad idea — if the bank isn’t still there when you go to withdraw your investment, you might not be able to get it back.

World interest rates

Compare interest rates, inflation and credit rating in the most popular overseas investment destinations against Canada.

*Our table is compiled using various sources and is intended for general comparison purposes only. Because the information may not be current, you should not base investment decisions on them. Note that interest rates, inflation and credit ratings change over time, sometimes abruptly, so it is best to verify what the most update information is before making any financial decisions.

How else can I benefit from offshore accounts?

Overseas GICs in particular may deliver better returns than products in Canada. Planning ahead to take advantage of an opportunity when available can be most valuable way to invest your money.

If you own a company with a 5-year plan to do business in South Africa, you might want to open a South African rand (ZAR) 5-year Guaranteed Investment Certificate (GIC) account to simultaneously earn interest and prepare for overseas finances.

Depending on your needs, you might also benefit from access to foreign currencies. If you transact a lot of business overseas, avoiding currency exchange fees is as good as money in your pocket. You may prefer holding an interest-earning offshore account in a currency that suits your needs, even if the interest is lower than what you might get in Canada.

Offshore accounts for tax minimization

Contrary to what you might’ve heard from TV and movies, you must pay taxes if you keep your money overseas. You’ll pay taxes in line with the local laws of your offshore account. You may need to pay tax on that income in Canada as well, including capital gains tax on investments and tax on interest earned from overseas savings accounts.

Talk with financial advisers or tax specialists to minimize your tax obligations and stay current with the laws that apply to your holdings.

The pros and cons of having an offshore account

What are the risks?

Investors looking to keeping their money in offshore accounts will want to be aware of specific risks:

• Regulations. Canadian citizens who hold funds in an offshore account are subject to laws, rules and regulations. Talk with a professional about your specific responsibilities to the CRA.
• Security. Your deposits aren’t always protected as they would be in a CDIC-insured bank in Canada.
• Accessibility. Opening and maintaining an offshore account can be costly. You’ll find simple savings accounts for Canadians offshore, but they might not provide the same advantages as an offshore account designed for investments.

Bottom line

Opening a savings account overseas can reap strong financial gains. But you put yourself at risk for tax evasion, higher fees and — if you invest in a less stable country — unpredictable inflation unless you know your responsibilities.

Talk with a financial or tax professional before investing in an offshore account, and research the country you’re considering to minimize your risk of inflation and instability. To compare offshore rates with domestic accounts, read our detailed guide to Canadian savings accounts.

Frequently asked questions

• How do I open an offshore bank account?

  Opening an account differs by bank. With most, you’ll provide government-issued ID, a statement from the bank you’re withdrawing from, a statement about the source of those funds and the purpose for setting up the account.

• Will I be able to invest directly from my offshore account?

  Yes, most offshore accounts come with investment options. The types of options that are available differ by bank, making it important to compare accounts before deciding which one(s) you’ll open.

• How will I deposit money into my offshore account?

  Most offshore accounts require an international transfer to that account. Look for a money transfer specialist that charges low or no transfer fees along with strong exchange rates when sending and receiving money to your Canadian account.

This depends entirely on your situation and why you are looking to open an offshore bank account. Before comparing or choosing an offshore account, speak with a financial or tax professional and do all your research on the topic.