There are millions of individuals and families who choose to live the life of an expat. There are many reasons these people choose to live outside their native countries. Whether it's wanting to travel the world or live in the perfect retirement setting, expats need access to funds.
In many instances, it's advantageous for expats to establish offshore accounts rather than rely solely on domestic ones in their native country. How do you go about choosing the right offshore institution for your needs when living the expat life? Here are a few tips that other expatriates find helpful.
Determine Use of Offshore Accounts
Before you get too far into the process, identify the specific ways you will utilize offshore accounts. Perhaps the primary function of an offshore checking account is to hold funds for your travels. In this case, look for offshore banks offering checking accounts with easy access to your money and deliver more benefits than a domestic account.
Consider an account for building a nest egg or safety net that you can access in case of a financial emergency. In this scenario, you'll want to think about savings and time deposit accounts that allow you to withdraw cash quickly and with as few penalties as possible. Once you know how you will use the accounts, it will be easier to focus on locations and banks that fulfill those purposes best.
Determine Legality of Offshore Accounts in Country of Choice
Here's something not every potential expat understands: you may or may not be able to open offshore accounts in the country where you will reside. While this is legal in some nations, it's against the banking laws in others. The only way to know for sure is to find out and plan accordingly.
For example, you may remain a citizen of your home country but choose to live in Country A. Since A's banking laws don't allow you to open offshore accounts within the nation's borders legally, you'll need to look at opening those accounts in Country B. Doing so ensures you remain within the limits of the law and still get to enjoy the benefits associated with offshore accounts.
Consider Political and Economic Climate
Whether you can open offshore accounts in your country of residence or must open them in a different nation, pay close attention to what's happening in that country. How stable is the political climate? Has it been that way for at least several decades? Are there any signs of unrest that could negatively impact the nation's function or possibly lead to less than advantageous laws for expats? If all is well on that front, delve into the country's options for offshore banking in more detail.
Along with the political stability, think about the economy. Has it held up well even during periods when recessions triggered significant problems around the world? Do you believe that the economic strategies generally employed within the country help to keep the economy stable? If the answer is yes, it's worth continuing to consider it as the base for your offshore banking accounts.
Consider the Financial Stability of the Offshore Bank
If you're happy with the political and economic conditions within the country, it's time to look at the financial strength of the bank you're considering. This typically does tie into the types of government requirements imposed on an institution. In many cases, the bank must maintain a minimum amount of financial assets to ensure against failure or collapse.
Drill down and determine what assets serve as a foundation for that bank. Are they stable? Are they a mix of cash assets and assets that can be liquidated quickly if the need arose?
Use your sense of comfortable to decide if those minimum requirements and the form they take leave you confident about placing your money there.
Inquire About Bank Ties with Your Home Country
This is another area that expats might overlook, but it can be significant. If the offshore bank has a direct presence in the country of your citizenship, the economic and political conditions at home could also impact what happens with your offshore accounts.
The best solution is to make sure there are no connections between your home country and the offshore bank that you ultimately decide to use. This allows you to focus on conditions within that one country and not worry about potential account freezes and other issues that could arise at home.
Confirm Initial Deposit Requirements
As you consider different nations for your offshore checking and savings accounts, ask about initial deposit requirements. Offshore banks in some locations require modest initial deposits while offering rewards as those balances pass specific amounts. If you need to begin with a smaller initial deposit but plan on adding to it regularly, this might work out well for you.
Remember that lower deposits typically mean earning lower rates of interest. In fact, minimum deposits that are more modest may not earn any interest at all initially. Once you do reach a certain balance, the interest begins to accrue.
Make sure you understand the bank's regulations about when the balance is assessed to issue interest. That makes it easier to ensure you enjoy the most growth for your money.
Take Taxes and Interest into Consideration
Expats in some countries do not have to pay any taxes on the funds in their offshore accounts. Others may have to pay some form of tax or other assessment annually if their account balances are over a certain limit. In this case, the bank may be in a position to ensure the funds are deducted from your account and forwarded to the right agency.
Before making assumptions, talk with a bank officer and determine what obligation you will have and how often the taxes must be paid during a typical year. The fact that taxes are involved doesn't automatically mean basing accounts in that nation is off the table. However, it does mean you should weigh the benefits against the amount of taxes you'll pay.
Determine Offshore Account Access
How will you go about accessing your accounts when the need arises? Many offshore banks offer online access, allowing you to monitor your accounts from anywhere in the world. You can arrange deposits, transfer funds between accounts, and use a debit card for purchases.
If you have a credit card as part of the account with that same offshore bank, you can likely monitor card use and make payments using funds in your offshore checking account.
While this does hold true in many places, be aware that there are still countries where banking is done through a local agent. In that scenario, the agent takes care of the accounts and provides information to you upon request. This may or may not be an arrangement that you find helpful.
Identify Security and Privacy Measures in Place
One of the traditional benefits associated with offshore bank accounts is the level of privacy they provide. Information isn't shared with anyone without your expressed permission. That includes preparing financial statements delivered to a domestic tax agency. Even then, the reports are often forwarded to you. Once you review them, it's up to you to provide them to the tax agency.
Security is also crucial these days. You want to know that access to your accounts occurs behind firewalls and other strategies designed to ensure no one can monitor your account activity. Many nations with robust offshore banking enterprises have the latest security measures in place. Be sure to understand what security and privacy measures are in place with an offshore bank before making any deposits.
Choose an Experienced Offshore Bank
It's essential to choose a recognized and respected offshore bank. Look for a well-established bank run by experienced professionals and offers a diverse range of personal and/or business accounts for your needs.
Caye International Bank is one such bank. Located on beautiful Ambergris Caye in Belize, Caye Bank has been meeting the offshore banking needs of individuals and businesses for almost two decades.
Our team of professionals stands ready to help you with your offshore banking needs. Contact us today and learn how our account options can work for you.
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Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank, a FinTech School Instructor and the published author of The Digital Banking Revolution – now in its third edition.
You can follow his posts on trends shaping the banking and financial services industry on Twitter: @luigiwewege