An offshore bank is a bank that is physically located outside the country of the account holder. Offshore banks are established in some other countries due to the financial advantages offered by those countries. The advantages can be as follows:
- More privacy on the part of the bank, which is a part of the Swiss Banking Act
- Quicker access to account holder’s money
- Taxes less than in the home country
- Lesser risk from financial and political instability
Although an offshore bank is used for several purposes, it is usually used to deposit money earned from organized crime and underground economy by the means of money laundering. The money deposited in offshore banks is usually free from being taxed as the authorities of the home country are not aware about such deposits of the account holder.
Like any other bank, an offshore bank also provides several services. In fact, many a times, it provides services that are not offered by the banks in the home country. The common services that an offshore bank provides include money deposit, credit, foreign exchange, electronic and wire fund transfer, fund management, trade finance & letter of credit, trustee services, investment management, and corporate account administration.
Now that we know what is an offshore bank, let us discuss what are some of the advantages and disadvantages of such a bank.
Many offshore banks offer higher interest rates and lower maintainence charges as the government intervention is low in the country. It is also a good source finance as many offshore banks readily offer money because this is among the only few kind of business many islands are depended on.
For all the advantages, there are certain disadvantages as well. An offshore bank is prone to many financial risks. The economic downturn of 2008, for instance, swept away many offshore banks as the economy of many islands sunk. Besides, these banks are located in remote areas. Hence, physically visiting the banks or accessing personal account information can be a bit exhaustive task. Also, these banks have been accused of supporting various many criminals and terrorists group who open their accounts in such banks.
Although it is commonly believed that Switzerland is the hub of offshore banks, there are actually many islands and small nations that are involved in offshore banking. Some of them are Belize, Monaco Cayman Islands, Cook Islands, and Hong Kong. You will find some of the best offshore banks in these centers.