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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.
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 TransferWise offer a suite of services for borderless business.
- International currency transfers. Send money overseas and convert currency — with lower rates than bank transfers.
- Lower conversion fees
- No monthly fee
- No foreign transaction fee
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- Hold multiple currencies in one account
- Send money overseas
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.
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.
How else can I benefit from offshore accounts?
Overseas CDs in particular may deliver higher returns than products in the US. 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 five-year plan to do business in South Africa, 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.
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 the US.
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 the US as well, including capital gains tax on investments and tax on interest earned from overseas savings accounts.
Talk with a financial advisers or tax specialists to minimize your tax responsibilities and stay current with laws that apply to your account.
What are the pros and cons of an offshore account?
- 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.
- Online accessibility. You typically have access to savings accounts, multicurrency accounts, CDs and global fund transfers.
- 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. If you don’t declare your income to the IRS, you could be convicted of tax evasion — even if it’s unintentional.
What are the risks?
Investors looking to keeping their money in offshore accounts will want to be aware of specific risks:
- Regulations.US citizens who hold funds in an offshore account are subject to laws, rules and regulations. Talk with a professional about your specific responsibility to the IRS.
- 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.
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.
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