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Offshore banking often carries negative connotations in clients’ minds. Yet, it can be a valid component of expat financial planning. Perhaps you move abroad, and your UK bank will no longer accept you as a customer and local banking options do not appeal to you.
In such cases (and others), offshore banking could offer a solution. However, what is offshore banking exactly? How does it work, and when does it make sense to consider it? Below, our financial advisers offer a short guide for expats in 2024-25.
We hope this information is useful. Get in touch to discuss your own financial plan with us via a free, no-obligation consultation.
What is offshore banking?
Offshore banking is when an individual holds a bank account in another country. For instance, if you are a resident of Spain but hold an account in the Isle of Man (IoM), this is classified as an offshore bank account.
Such accounts may be housed in jurisdictions with favourable legal, tax, or financial regulations. Traditional examples include countries like Switzerland, the Cayman Islands, Singapore, and Panama.
They often operate similarly to a regular account – letting you send and receive money, hold savings, use a debit/credit card, and engage in mobile/online banking.
Key benefits to consider
Offshore bank accounts are often highly “portable”. Whilst a UK bank may close your account(s) when you become non-resident, an offshore account provider may let you keep the same bank account every time you move.
Unlike many fintech solutions, offshore providers often allow expats to access human support. Rather than sifting through FAQ pages and talking to web chatbots, you can rely on speaking with the bank directly if you ever have a question or problem.
Moreover, the provider will typically provide in-house international expertise. Team members will be familiar with common issues expats encounter and how to resolve them.
Many offshore jurisdictions also give expats access to asset protections. The IoM, for instance, offers protection for ‘eligible protected deposits’ of up to £50,000 under the DCS scheme.
Depending on their location, expats may struggle to find local financial services that grant strong access to international financial markets and services. Again, an offshore account could address this and allow for dealing in multiple currencies. Higher levels of confidentiality and privacy could also be available.
Drawbacks to offshore banking
Offshore banking providers often have more stringent application processes. They need to keep their reputations and brands intact, avoiding potential clients who could be engaged in money laundering or tax evasion. You may need to fill out a lot of forms to open an account!
The Common Reporting Standard (CRS) is a case in point. 120 countries have signed it to date, with the first reporting starting in 2017. This requires signatories to automatically exchange data on their residents’ assets and income.
This, ultimately, is a good thing. It should help rebuild the image of offshore banking. Rather than an illegitimate tool for tax dodgers, it will hopefully be perceived more widely as a possible solution for expats (and others) who may lack access to robust local banking solutions.
Offshore banking often comes with higher costs. A provider may require a minimum deposit to be maintained, such as £5,000. They also involve maintenance costs such as account fees, minimum balance requirements, and transaction charges.
International transfers or communications can take longer due to geographical and time zone differences. You may also face limited services, such as fewer mortgage or loan options.
Do I need offshore banking?
As always, it depends on your unique financial goals and circumstances.
If you are “settled” in your host country as an expat, there may be less need for it if you have access to robust local banking services. For instance, a British expat in Spain can access the Spain Financial Services Compensation Scheme, which offers protection of up to €100,000 per depositor per bank.
However, a British expat with more of a “digital nomad” lifestyle might benefit from it. Certainly, fintech solutions like Wise can offer a cheaper way to convert currencies and send money to other countries. However, the platforms may not be covered by national protections like the UK’s Financial Services Compensation Scheme (FSCS).
Individuals may also want to consider offshore banking if they are located in countries with unstable currencies, high inflation, or political risks. In such jurisdictions, an expat will likely want to shield their money from possible government interference, seizure or capital controls.
If you want to ensure you’re taking the right steps to safeguard your financial future, please get in touch to speak with an expat financial adviser here at Scottsdale.