Loading the player...

Offshore banking is often associated with a high level of financial sophistication. However, the reality is that the average person can open an offshore bank account with just a few hours of work. (For related reading, also see Pros And Cons Of Offshore Investing.)

TUTORIAL: How To Manage Credit And Debt

Each offshore bank and foreign jurisdiction has its own requirements, so you'll have to do some research to find the specifics relevant to your situation. The following is an overview of what you can expect, based on common offshore banking centers such as Switzerland, the Cayman Islands and the Channel Islands.

The Basic Requirements
The basics of opening an offshore bank account are similar to opening a bank account in your home country. Offshore banks will ask for your personal information, such as your name, date of birth, address, citizenship and occupation.

To verify your personal information, you can expect to submit a copy of your passport, driver's license or other identifying documents issued by a governmental agency. Additionally, banks are concerned with verifying your residence or physical address since this may affect taxation issues. This requirement may be satisfied by presenting a utility bill or similar documents.

Due to the wide range of different identification documents that may be presented to offshore banks, additional assurance of a document's authenticity is often required. A notarized copy of certain documents may suffice in some cases. Other offshore centers prefer an "apostilles" stamp, which is a special type of certification mark that is used internationally. Where this is the case, you will need to visit the government office that is authorized to issue this stamp for your state or nation. (For a general overview, also see Taking A Look At Tax Havens.)

Additional Verification Documents
In offshore banking, there are often considerable additional requirements to open the account to which you may not be accustomed. These requirements are in place to discourage money laundering, tax fraud or other illegal activities that are often associated with offshore banking.

First, offshore banks may ask for financial reference documents from your current bank, indicating average balances and a "satisfactory relationship." Most commonly, this is satisfied by bank statements for the last six to 12 months.

Second, many offshore banks ask about the nature of transactions expected to take place through the account. This may seem overly intrusive, but offshore banking centers have been under increasing pressure to stop illegal activity. For this purpose, many offshore banks want additional documentation, noting from where the money you are depositing in the bank is coming.

If your funds are from job income, a wage slip from your employer will likely suffice. To verify your investment income, an offshore bank may ask for information about your investments and where they are held.

If you have significant funds from a business or real estate transaction, you may need to provide sales contracts or other relevant documents. If you are depositing funds from an insurance contract, you may need to provide a letter from your insurance company. If your money comes from inheritance, they may ask for a letter from the executor of the estate testifying to this effect.

Choosing a Currency for Your Offshore Bank Account
Unlike domestic accounts, offshore bank accounts offer an option of which currency to hold the account in. This can be a highly valuable feature of an offshore account, since it offers the ability to hold funds in a different currency if one's domestic currency is unstable or expected to depreciate. (To learn what affects exchange rates, see 6 Factors That Influence Exchange Rates.)

It is important to understand the consequences of holding your account in different currencies. For example, holding funds in certain currencies may allow you to earn interest on your deposits, but this can also result in foreign tax liability. In addition, you may need to exchange currencies to make deposits and withdrawals, which could be a significant expense depending on the fee structure and exchange rates offered.

Depositing to an Offshore Bank Account
Offshore bank accounts are most often funded electronically through international wire transfers. Unfortunately, the systems that enable free electronic transfers common in domestic banking are typically not able to transfer money internationally.

Sending a wire transfer is a simple operation, but almost all banks charge international wire transfer fees to send or receive funds. Pricing for wire transfers varies from bank to bank, so be sure to look for deals. Unfortunately there are few good alternatives. Domestic checks are generally not accepted in foreign jurisdictions, and personally carrying funds is impractical.

TUTORIAL: Brokers and Online Trading

Withdrawing from an Offshore Bank Account
Offshore banks offer a variety of ways to withdraw funds in order to maximize the convenience of using their services. Many offshore banks issue a normal debit/ATM card that allows you to easily access your funds worldwide. You will want to look into the fees for using this method, since international ATM fees can be expensive. Withdrawing larger amounts of cash at one time may help to minimize these fees.

Some offshore banks offer checks. However, this is usually not a preferred method of withdrawing funds. Primarily, this is because confidentiality is often desired in offshore accounts. Problems may also arise since checks drawn on foreign accounts are not always accepted.

The best option may be to use two accounts: one offshore, one domestic. In this way, electronic wire transfers can be used to transfer larger amounts of offshore funds to a domestic account where they can be easily accessed. This method offers greater privacy and security, while also giving the convenience of local banking services.

Seeing Through the Offshore Mystique
Despite the mystique surrounding offshore banking, it is relatively simple to open an account. Often all it takes is filling out the paperwork, supplying some basic identifying documents and providing additional information to show that you are not planning to use the account for illegal activity.

Choosing the best currency and optimizing deposits and withdrawals are slightly more complicated, but the best choice for these items should become clearer as you study your personal banking situation. (For additional reading, also take a look at The Ins And Outs Of Bank Fees.)

Related Articles
  1. Wealth Management

    How To Open And Access An Offshore Bank Account

    Opening an offshore bank account does not require a high level of financial sophistication. It’s a lot like opening an account at your neighborhood bank.
  2. Term

    How Time Deposits Work

    A time deposit is an interest-bearing bank deposit that has a specific maturity date.
  3. Term

    Who Benefits from Microfinance?

    Microfinance describes banking services provided to low-income people or groups. Specific services offered by microfinance institutions include microloans, micro-savings and micro-insurance products.
  4. Stock Analysis

    3 Popular Financials Stocks in 2015 (WFC, COF)

    Find out about some of the popular financials stocks in 2015, why they have become popular and whether they will remain popular going forward.
  5. Retirement

    Is Bank of America Stock Suitable for Your IRA or Roth IRA? (BAC)

    Learn why Bank of America's established track record and long-term stability make it more suitable for a traditional IRA than for a Roth IRA.
  6. Stock Analysis

    Bank of America's 3 Key Financial Ratios (BAC)

    Discover some of the key financial ratios that show the quality of Bank of America's loan portfolio and how profitable the bank has been.
  7. Stock Analysis

    Wells Fargo's 3 Key Financial Ratios (WFC)

    Look at some of most important financial ratios for with Wells Fargo & Co. and understand why they are so important for analyzing the bank's core business.
  8. Economics

    What's a Non-Banking Financial Company?

    A non-banking financial company, or NBFC, does not hold a banking license, yet it still provides many banking services.
  9. Stock Analysis

    3 Disrupters of Retail Banking

    Understand how the retail banking industry operates and why it's becoming outdated. Learn about three disrupters that are changing the way consumers bank.
  10. Investing Basics

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
RELATED FAQS
  1. Why is Andorra considered a tax haven?

    Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>
  2. How long does a stock account have to be dormant before it can be escheated?

    A stock account is typically considered dormant and eligible for escheatment after five years of inactivity; however, this ... Read Full Answer >>
  3. Do banks have working capital?

    The concept of working capital does not apply to banks since financial institutions do not have typical current assets and ... Read Full Answer >>
  4. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  5. What net interest margin is typical for a bank?

    In the United States, the average net interest margin for banks was 3.03% in the first quarter of 2015. However, this was ... Read Full Answer >>
  6. What are the main benchmarks that track the banking sector?

    The appropriate benchmarks for tracking banking sector performance depend on the type of banking. For instance, commercial-only ... Read Full Answer >>
Trading Center