Offshore banks accounts are easily defined. From the American perspective, they refer to bank accounts that exist outside the continental United States. They typically refer to accounts located in Caribbean islands, often the Caymans, but some in the financial industry may expand the definition to include all foreign bank accounts (such as those in Switzerland) – even if their actual physical location exist beyond what might deemed offshore. The definition is easy.

For most people asking that question, they are probably more interested in how offshore bank accounts function and why some Americans use them. That is more complicated and difficult to answer. The answer begins with personal preference. Americans who use offshore accounts do so because they find advantages in parking their money there in comparison with US banks. Like most other things in the world, the answer as to why somebody does something is often because they find it to be in their own best interest.

Obviously, the next logical question would be to ask what advantages to banks like those in the Caymans offer. The primary advantages are typically financial. Some clients will find that they can get better interest rates offshore than they can domestically. Foreign banks do not have to operate by all of the same rules as US banks, which sometimes allows them to produce higher returns. These are often accompanied by lower usage rates than many American banks can match.

In addition, offshore banking can offer certain tax advantages (or havens) compared to US banks. That does not mean that Americans are legally immune to paying taxes on this income, only that there are certain advantages to doing so. This depends on both American and foreign laws as to how much these savings are and when they can be realized.

It should be noted that these gains are also usually accompanied by increased risk. While most of these banks have a legitimate and solid track record, they do not offer the same FDIC insurance that protects those with accounts in the US if their accounts fail. There are other forms insurance for the abroad accounts, but those differ from country to country and bank to bank. Another risk is that offshore bankers may be at the whim of governments that are less stable than our own and could potentially seize funds if they feel it worthwhile.

In recent years, banking offshore has taken a bad rap in public perception. It has been associated with criminals and tax evaders looking to hide their money from the watchful eyes of the IRS. In reality, this is largely a myth. I am sure that there are certain situations where organized crime is using offshore accounts to launder money and/or a wealthy man is hiding a large sum of funds abroad from the tax agencies or his wife during a divorce. However, the vast majority of clients for offshore banks are perfectly legitimate. They are interested in the potential for higher returns and/or other financial perks that they can get by banking in the islands.

Author recommendations:
WSJ article on Foreign Banks
Duplicate Payments Information from Apex Analytix
Citibank\’s International Branches

Author recommendations:
http://online.wsj.com/article/SB10001424052970203918304577240690049700020.html
http://www.apexanalytix.com/duplicate-payments.aspx
http://www.citibank.com/ipb/europe/index.htm

Author Bio: Author recommendations:
WSJ article on Foreign Banks
Duplicate Payments Information from Apex Analytix
Citibank\’s International Branches

Category: Finances
Keywords: Offshore banking, international banks, foreign investments, banks