What is Offshore Banking?

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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 09 February 2018
  • Copyright Protected:
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Offshore banking is becoming very common in the financial world and more individuals are starting to seek it out. Offshore banking is offered by companies that are located in foreign countries. This type of banking is loosely regulated, can save individuals money, and is very risky.

Offshore banking is pursued by many investors because it is loosely regulated. Banks that are operated in different countries do not have to abide by the same rules as domestic banks do. They can operate with different accounting standards and utilize different methods. Many investors prefer the services that can be offered by an offshore bank. It is this flexibility that attracts many customers to an offshore bank.

One of the primary reasons many individuals prefer offshore banking is because it can save them money. Many offshore banks will locate themselves in countries that have favorable tax situations. In many cases, these banks will not have to pay any taxes to the country in which they are located. This significantly cuts down on the amount of operating expenses for the bank. In return, the banks can pass these savings on to their customers.

As a customer of an offshore bank, individuals can potentially expect to receive higher interest rates. Offshore banks might also charge less money in traditional bank fees. Regardless of how the savings is passed along, it is usually advantageous for the customer.

Even though opening an offshore bank account can be very attractive, there are some potential disadvantages as well. One of the biggest disadvantages is that customers have to take on a large amount of risk to pursue this opportunity. Even though there is less regulation for the bank to have to worry about, this also adds risk for the investors. In order to open an offshore bank account, individuals have to be fine with the idea of putting their money into a foreign country.

Over the years, there have been many different offshore banking scams. Individuals have deposited large amounts of money into these offshore banks and then have been unable to retrieve the money. The lack of regulation played against the individuals in this case. When investing in this type of bank, an investor has to be very cautious and do a large amount of research about the company. In many cases, individuals should only consider doing business with banks that have branches within their native country as well.



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