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Compare offshore accounts
Take advantage of foreign financial institutions without breaking the law.
An offshore bank account can provide access to foreign currencies or financial products not available in the States, along with more privacy and the potential to minimize taxes. But managing a foreign account can be complicated.
How can 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 than the US does on investment income.
- 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.
Are offshore accounts illegal?
No. 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 the US 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 Wise offer a suite of services for borderless business.
- International currency transfers. Send money overseas and convert currency — with lower rates than bank transfers.
What are the pros and cons of an offshore account?
Offshore accounts have several benefits and risks you should be aware of:
- Lower taxes than in the US. Taxes are a main appeal for investors looking to open offshore investment accounts.
- Foreign investments and products. An offshore account can provide a range of investment and banking services that aren’t available in the US, including bonds, stocks brokerage, foreign exchange, investment funds, equity-linked products, mortgages and lending and insurance.
- Could be a good business strategy. If you own a company with a five-year plan to do business in South Africa, for example, you might want to open a South African rand (ZAR) five-year certificate of deposit account to simultaneously earn interest and prepare for overseas finances.
- Avoid currency exchange fees. 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 the US.
- Hard to apply. Local restrictions and requirements can make applying for an offshore account difficult.
- Fees. You could be charged fees for the advantage of keeping your money in an offshore account.
- Legal ramifications. Contrary to what you see on TV, you must pay taxes if you keep your money overseas. If you don’t declare your income to the IRS, you could be convicted of tax evasion — even if it’s unintentional. Talk with financial advisers or tax specialists to stay current with tax laws and regulations that apply to your account.
- Security. Your deposits aren’t always protected as they would be in an FDIC-insured bank in the US.
- Accessibility. Opening and maintaining an offshore account can be costly. You’ll find simple savings accounts for Americans offshore, but they might not provide the same advantages as an offshore account designed for investments.
Compare interest rates around the world
When you open a high-interest savings account in the US, you might find interest rates of 2% to 3%. 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 is expected to hit 1,000,000% by the end of the year. 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 US 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 the US.
|Country||Interest rate||Inflation rate||S&P rating|
|United Arab Emirates||2.50%||1.60%||AA|
*Our table is compiled using various sources and is intended for 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.
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 comprehensive guide to US 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.
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 US account.
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