As with any question related to your personal life, the answer is: It depends.
It depends on how much money you have, on the intended uses of the account, or it may depend on where you plan to live.
And, by the way, if you’re an American reading this, opening an offshore bank account depends on whether or not you’re an American.
Effective since March 2010, the Foreign Account Tax Compliance Act (FATCA) and the global banking industry have specific terms about its rules and regulations for non-U.S. banks with Americans as account-holders.
Some offshore banks have taken the position that they do not want any U.S. clients. Some have allowed Americans with accounts to keep those accounts… but have decided not to open new accounts for anyone with a U.S. passport.
While being an American limits your offshore banking choices, you do still have options. So move on to the next key variable:
What is the intended use of the account?
The most straightforward situation is if you’re moving to another country and need a local operating account. In that case, you can simply open an account with a local bank and use it to pay your local bills.
In some countries, you’ll have to start with a savings account. Checking accounts are higher risk for banks, so sometimes new account holders with no local credit record have to prove their worthiness. You can do this by creating a track record with a savings account.
You can use a consumer account as a way to store money outside your home country, but, if you intend to move a relatively large amount overseas, you should consider an investment account. Sometimes local banks have private banking divisions, or you can shop for a private bank.
Unfortunately, again, the U.S. government can get in your way. In this case, though, it’s not the U.S. Treasury Department, as with FATCA, but the SEC. Many (maybe most) private banks restrict investments available to Americans to CDs thanks to SEC regulations. The exception can be a private bank with U.S. branches. However, in that case, the bank is already under the regulation of the SEC and will offer U.S. clients U.S.-registered investments only.
You can, however, hold different currencies… and, if you set up an offshore entity, you can use that to make non-U.S. investments.
Why Might You Want A Bank Account In Another Country?
Maybe because you’re planning to move to that country and need an account from which to pay your local bills…
Maybe because you’re intending to invest in a rental property in that country and need an account into which to receive your tenants’ rent payments and, again, from which to pay related expenses…
Maybe to support the start of a business overseas…
Perhaps because you don’t like the idea of your available cash sitting 100% in U.S. banks… or all in U.S. dollars…
Or perhaps because you’d like to diversify and expand your investment options.
Your reasons for needing or wanting a bank account in another country help determine where best to open the account.
If you’re intending to live or retire, either full- or part-time, in your chosen haven overseas, then, to state the obvious, that’s the place where you need a bank account. In this case, you’re talking about a personal operating account.
Same goes if you’re purchasing a rental property in another country. You’ll need a personal operating account to support that investment. If the investment you plan is in a business, then you may need a corporate account.
Things become less cut and dry when your agenda is to do with diversification of cash on hand, of currencies, or of your investment portfolio.
If an offshore bank account is part of your asset protection and diversification plan, here are variables to consider… ways offshore banks compete and distinguish themselves:
Required Minimum Investment
Private banking options typically require minimum account balances of at least US$100,000. More options are available at US$250,000, and US$1 million is really the norm.
If you’re looking to place that kind of money in an offshore account, hopping on a plane to meet the banker in person makes sense, and, in fact, most banks around the world today require an in-person meeting before opening an account. It’s part of today’s Know-Your-Client (KYC) process.
However, if you’re looking to just move US$10,000, say, out of your home country, investing time and money in a trip overseas to visit a bank in person might not be worthwhile. Although the ability to open an account remotely has become rarer, fortunately, some banks will still open an account remotely. This generally requires more documentation, but FedEx’ing reference letters and tax returns is easier and cheaper than an international plane trip.
Ability To Move Money Remotely
This is a critical factor to remember not only when choosing where to open your offshore bank account but also with regards to your U.S. bank. You need to be able to move money from your U.S. account to your foreign account and vice versa from anywhere in the world. You don’t want to have to fly back home to Nebraska to initiate a wire of funds to your new bank in Colombia.
One U.S. bank in particular that we know does not allow the long-distance transfer of funds is Wells Fargo.
Increasingly, though, the ability to send a wire remotely is a service supported by banks worldwide. In addition to confirming that you will be able to move money without showing up in person at the bank, ask for details concerning the bank’s remote-wire security systems. Some banks use emailed passwords; others use fobs or security tokens.
Fees
One consequence of FATCA and the U.S.’s current anti-money-laundering crusade has been a steady increase in the cost of banking offshore. Banks worldwide are passing on the cost of compliance and increasingly onerous know-their-client requirements to their customers, meaning, depending on the bank, monthly fees, report fees, and rising wire fees.
