There are many reasons why you might need to open an offshore savings account compared to the conventional one back at home. If you live abroad, opening an offshore account makes it easier to access funds and saves a lot in transaction-related charges.
For others, an offshore bank account is like an investment because you can put the cash in the currency of choice. Note that such investment is dependent on whether the foreign currency has a favorable rate at the time of withdrawal. Here are some of the main considerations to help you make the decision whether to open an offshore savings account.
Currency Exchange Fees
Most offshore saving accounts come with higher minimum deposits compared to traditional saving accounts. In most of the cases, there are currency exchange charges for converting funds from one currency to another.
This implies that you will be charged twice after opening a foreign account; when converting funds o the target currency, and when reverting to the original currency before withdrawal. Because the fee is calculated as a percentage of the amount converted, it is important to factor the fees before making the decision to go offshore.
Tax reporting requirements
Once you decide to open an offshore savings account, it is important to check on all the requisite regulations. In 2014, OECD members passed the CRS framework that requires cooperating countries to share financial information with respective home jurisdictions. When this is factored at together with other regulations, you might need to pay part of the interest generated by the account.
For those in the United States, the Foreign Account Tax Compliance Act (FATCA) of 2010 requires people to disclose their cash in foreign accounts if it exceeds $10,000. The foreign banks are also required to report such accounts to the US Internal Revenue Service. Therefore, those looking at foreign saving accounts as investments should make the calculations to know whether they will have significant returns. Note that the capital gains tax is dependent on your tax bracket.
What are the risks and benefits?
Saving your cash in a foreign account works best if you are able to follow the exchange rates and move with speed to make appropriate changes.
Because of the high volatility, even minor shifts can bring about very huge risks or benefits. The potential for gains with positive shifts especially for those savings large amounts can be very high. However, you should be cognizant of the equal potential for hefty losses.
Other benefits of factor include access to investment opportunities especially those offered by foreign companies. Note that even with such opportunities, the risks are still high. You should start with evaluating the targeted jurisdiction and researching the treads of the areas you want to invest in.
The Bottom Line
If you have been targeting to open an offshore saving account, you need to weigh both the benefits and demerits. The focus should be targeting a bank and country that guarantee the highest possible returns. You should also factor the emerging trends and banking laws in such a jurisdiction.