How do offshore bank accounts work
13 reasons for an offshore account
Interested parties write to me again and again and ask why all this offshore banking is good for. I have to admit, then, that I've never really written about it. While tax aspects and offshore companies have been dealt with in great detail, there are already specific offers for offshore accounts (which some readers have already made use of) and 4 ways of getting money on them, but only a small version of the reasons for an offshore account. We want to address these in more detail today.
What defines an offshore account?
A Offshore account is defined by its two components "Offshore" and "Account". "Account" simply means a deposit of a bank in which your credit is physically or virtually secured. The account hardly differs from that of normal banks. You usually have full access through online banking, you can withdraw money by debit card and make full transfers. Only these and other services often incur higher fees because many offshore banks finance themselves through fees rather than lending money. This is one reason for offshore accounts, which we will examine in more detail in the “Security” section.
We come to the first component, "Offshore". "Offshore" means "off the coast" and alludes to island nations. Of course, this is only half the story. While many small islands offer offshore services, they are not exclusively doing it. Sometimes there are also mainland states with sea access like Belize and Panama, sometimes just small “islands” in the mountains like Liechtenstein and Andorra. In general, however, with regard to offshore services, it can be said that the smaller a country becomes, the greater the likelihood of offshore services. Because of a lack of resources, manpower and capital, they are specifically dependent on industries such as financial services, which can iron out the missing factors. If "offshore" plays a role in larger territorial states, then almost always only on dependent small islands from the colonial past of the countries (e.g. Curacao, Kingdom of the Netherlands, United Kingdom).
Together, “Offshore” and “Account” make up a series of Advantages, which make them superior to conventional accounts at conventional banks. This superiority can of course only be seen in certain situations. If the world were a paradise, there would be no need for offshore banking. Unfortunately, it is not a paradise. Everything that banks should actually do is increasingly corrupted by their own profit-making and politics.
In Germany one can still smile at some of the reasons given from now on - but not for too long.
Even if - and this remains to be hoped - capital controls, cash bans and expropriations (which already exist due to inflation) will never come to Germany - you can never be safe from them. And protecting yourself against any eventualities with part of your assets has not harmed anyone.
Would it harm you?
13 reasons for an offshore account
In the following I dedicate myself 13 Reasons for an Offshore Account. Some of them are always interesting, some only in times of crisis. But all of them are more realistic than you might think. And while not all of them have to apply to every offshore bank at the same time, they are given different weightings for almost everyone. Basically, reasons for an offshore account can be divided into two categories: the protection of risks and the enabling of opportunities. There is also a moral component. In the triad, an offshore account is completely convincing - after all, it opens up similar possibilities as a normal bank account - but so much more. By the way, there is regularly more about individual locations and banks in my newsletter:
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1. Circumvention of capital controls
Imagine that you are currently Greek and do not have an account outside of your home country. You are limited to withdrawing € 60 per day and cannot make international transfers. Amazon and Co. will fall flat for you. Paypal, Western Union & Co. have ceased operations due to government restrictions. Apart from Bitcoin and other cryptocurrencies, you can only bring money in and out of the country in cash. Any amount that is too high will of course be stolen from you again.
It's an unfortunate situation, though Capital controls take control. Not only do you suffer as an individual, companies suffer even more. You can hardly import, let alone export. Due to the failure of payment service providers, many customers can no longer pay for their products. Burdened by already insane bureaucracy and taxes, the last remaining Hellenic industry is slowly dawdling towards its end.
Capital controls are anything but a seldom used tool by states - but a devastating one.
Their goal is understandable: to stop money from escaping abroad. However, the side effects are considerable - the country in question is almost completely cut off from the world market with its many suppliers.
Of course, the restrictions only apply to Greeks - or many more Greeks who have not brought their money to safety. Tourists can still withdraw a multiple of € 60 a day - just like the Greeks, who wisely put their money into foreign accounts.
One of the reasons for an offshore account is precisely to bypass capital controls. Often these do not apply entirely, but only apply domestically to cash flows abroad. Even the Greeks cannot think of one of the last sources of income - tourism - to stifle. But tourists need money - and Greeks want them to spend it. Giving them a limit would be uneconomical for both sides. This means that not only tourists, but also Greeks continue to have full access to their accounts, provided they are abroad. Greeks don't starve to death from € 60 a day - but who knows how tight capital controls will be in the future?
With an offshore account, there are none of these questions to worry about. A wisely chosen offshore jurisdiction will certainly not introduce capital controls. In the case of one in your country, you can probably continue to withdraw unlimited money or have access to providers from the global market such as Amazon.
And much more important: you can, if the situation requires, flee the country. If all of your funds are stored in one country and strict capital controls are in place, you are ultimately trapped in the country. Without funds, you cannot even leave the country - even if you managed to escape, your assets would probably be seized. This has been the case several times in history. Offshore accounts have already saved lives like this.
What is your life and wealth protection compared to the minimal hassle of opening an offshore account?
2. Protection against cash prohibition
Stateless has already written about a cash ban. This is currently being discussed more and more by many “leading” economists and politicians. Reasons such as the prevention of money laundering are only an excuse. Essentially, it is about further limiting the escape opportunities for domestic accounts so that they can be expropriated even more easily - not necessarily directly, but much more through negative interest rates and inflation. After all, the normal citizen hardly notices that. The money is gone - but capitalism is to blame for negative interest rates and inflation, not the government - he thinks. It couldn't be much more wrong about the central banks manipulating interest rates and driving up inflation.
But they still manage to hide this masterfully.
An offshore account cannot be opened directly before Cash prohibition sprotect. If cash possession and cash payments are prohibited in a country, you can no longer withdraw cash from foreign accounts. However, you are still indirectly protected. Especially since a cash ban is often combined with tightening capital controls, it is then almost impossible to get your savings out of the country. With an offshore account, however, you've already done it. You know your money is safe and you can forge escape plans and simply build a new existence elsewhere with your assets.
3. No indirect expropriation through inflation
The I.anti-inflationary protection.
As long as central banks manipulate the economy, there will always be inflation. As long as monetarist godplayers are in the saddle, the markets will always outsmart them.
While deflation is completely unjustifiably demonized, low inflation is downright praised. Although it is poison for your savings and slowly but steadily consumes it ...
Inflation is still within our limits - surprising given the central bank policy, but understandable given other deflationary tendencies in compensation. But how much longer will it go well? In other countries things are not looking so rosy. Venezuela is currently experiencing inflation of over 800% in a year. Domestic assets are virtually melting away. It seems like only a matter of time before Zimbabwe's trillion dollar bills are released.
Reasons for an offshore account can also be found in protection from it. Inflation always affects one currency. If you keep your money in another currency, you are largely isolated from the inflation of some. Inflation can of course also play a role offshore. If you've chosen a suitable location, it probably won't. Aside from the currency of your offshore destination, you can open a multiple currency account free of charge at almost any offshore bank. In other words, you decide in which currencies you keep your money and can react quickly to rising inflation. Not all currencies in the world will go down the drain at the same time - one or the other will certainly benefit. You could keep them and earn money ...
4. No direct expropriation through politics
Expropriations it can also be given by decree by the state. As the Basic Law says: “Property obliges”. Expropriation of property cannot therefore be ruled out.
Sometimes it concerns your weekend villa. because a new motorway is to be built - sometimes it affects your bank account because the government has already got into debt for it.
Direct expropriation is less likely than indirect routes via inflation and negative interest rates, but it is by no means excluded. A European example is the country of Cyprus in 2013. Even an offshore location for rich Russians, Cypriot accounts were expropriated, mainly due to pressure from the European Union. Laiki Bank customers lost everything above € 100,000, Bank of Cyprus customers will be frozen 50% and the other half will be paid out in shares.
Cyprus, a not too big island, is of course particularly hard hit because the country was and is dependent on financial services. An expropriation in recent history does not have a particularly trustworthy effect on potential new customers. But Cyprus has compensated many of its foreign investors - a fact that is otherwise often kept secret. Most of the Russian investors with high losses were offered citizenship of Cyprus - as an EU country very tempting, many Russians also took advantage of this.
What is certain is that this expropriation will hardly have been the last.
While Greece can still get around it, it won't be too long before it gets it. The heavily indebted rest of Europe will also worry about them.
The fact that direct expropriations can only easily be covered up still protects. The robber here is clearly the state. With negative interest rates and inflation, on the other hand, the government can reduce debts through the press and interest rate manipulation without suspicion falling directly on them. It is far more possible to blame capitalism on what the economically uneducated ordinary citizen is all too happy to believe.
5. Legal tax avoidance
Reasons for an offshore account can include those legal avoidance of taxes be. It is precisely in this context that offshore accounts usually come into the media. There is talk of tax evasion - but this only affects a few percent of all offshore accounts. Because in times of increasing information exchange, attempted tax evasion is just stupid.
Sooner or later it hits everyone who wants to hide something ...
But legal tax avoidance is booming - and rightly so. With tax rates increasing, it is completely justified that citizens look for an alternative. To what extent your tax-saving models are legal, of course, always depends on your individual case. We cannot make general statements at this point. With an expert tax lawyer by their side, however, almost every individual will find optimization potential in their tax matters, in which an offshore account will be one of the building blocks for more net assets.
7. Disaster preparedness
Reasons for an offshore account can include those Protection against disasters be. This does not mean the state-made catastrophes of hyperinflation, capital restrictions and expropriation, but rather those of the forces of nature.
Because if a hurricane rages, an earthquake destroys the country or a tsunami floods it, the banking system can certainly collapse.
When looters roam the streets (as in New Orleans, for example) the money under the pillow is of little use. In civil wars it may even be a death sentence, speaking of civil war or even interstate war. If you want to escape this, foreign assets are extremely important for building a new existence. Without an offshore account, escape becomes difficult again - and if it succeeds, you end up penniless in miserable refugee camps instead of being able to afford adequate accommodation.
8. Safer banks
Offshore accounts are not only used to hedge external, but also internal risks. One of the reasons for an offshore account is certainly that offshore banks mostly do safer banks are. Because offshore banks often do a lot different than domestic commercial banks.
First and foremost, offshore banks have a much higher level of capitalization. In some of them it is even 100% - that is, all of the stored assets are 100% physically covered. The coverage ratio in conventional banks and savings banks, on the other hand, is more in the range of a few percentage points.
There is a chance that some offshore banks will therefore not participate in the fraudulent partial reserve system.
Fractional reserve banking is the key word on which one can write a long essay. In short, it is about the multiplication of money by the commercial banks themselves by lending money. Anyone who has not studied economics can read about this process here.
It is true that states in countries such as Germany give a guarantee on savings - but what is statutory deposit insurance worth if the state is out to expropriate due to its financial situation? It is therefore better not to rely on changeable laws. A high equity ratio is a good indicator of the security of money in a bank. Because the more money is covered, the more is actually there. Even if there were a bank run, it would not have any negative effects except for the bank itself. It may then be bankrupt - but every customer has their assets safe.
Unfortunately, in today's world, the banks matter more than the customers. They are saved by expropriating their customers. Nobody saves offshore banks. But you will not be expropriated there either. So choose wisely which bank you choose!
Aside from equity capitalization, security naturally also plays a role in other aspects. For example, many offshore banks still carry out transactions manually, which significantly reduces fraud and errors. Your online banking is often secured with the latest technology and the data traffic is anonymous and protected from surveillance.
While banking secrecy is being weakened more and more in many countries, it is still quite strong in many offshore locations. Which could play a role not only in the state, but also in the greedy ex-wife or husband ...
9. More innovative financial products
Offshore banks are also regulated, but on a considerably smaller scale than our trusted banks. That makes it easier for them to find new ones, often innovative financial products to design that German customers can only dream of.
An example is the 100% gold and silver account of the Euro Pacific Bank. This allows the advantages of precious metals to be combined with the advantages of currencies, while many disadvantages disappear.
Gold suddenly becomes completely mobile and flexible, while paper money finally has a value.
There are also many other options. Multiple currency accounts have long been standard at many offshore banks - something that German banks often have to pay dearly on. Brokerage and many bespoke solutions for companies are often much easier to implement with small offshore banks, as there is much less need to approve.
10. Better support from private bankers
After all, one of the reasons to have an offshore account is care. While lower bank staff will often be less educated than in other European countries due to the geographical offshore positions, the personal support at offshore banks is often much better. There are still those here Private bankerswho only have the interests of their customers in mind.
In many savings banks and banks, the supervisors are paid on a commission basis. Your incentive to provide good advice comes second, and your income from sold financial products comes first. Often these are higher as the riskier these financial products are.
The high losses suffered by many small investors at the beginning of the last economic crisis can primarily be attributed to these windy advisors.
In the meantime, regulations may stop the hustle and bustle, but they make it all the more annoying. Thousands of rules during the conversation have to be observed and forms have to be filled out. Banking isn't fun like that.
What a delight it is to talk about your finances with a qualified private banker who is very familiar with your own situation. As a rule, private bankers have a high fixed salary, hardly ever collect any commissions and act entirely in the interests of their customers. After all, they want to chain her to their bank. Private bankers are not available around the clock, but almost at any time, whether by phone, fax, email or Skype, without prior registration and take care of their customers' wishes. Something that you can look for a long time at many German banks ...
11. Higher Interest
Negative interest rates have already been mentioned. More than 1% interest Getting on his savings is also difficult at the moment. At least in Germany. The situation is different in other countries. Let's take a look at what you get for your savings in other parts of the world.
Just a few hours away by plane, Turkish online banks offer over 10% interest. 7-8% is still the rule there, even with good, large banks.
A little more thirst for adventure? Uganda, Bangladesh or Mongolia offer around 12% interest.
The Ukraine beckons for the very brave. 20% interest on 3-month bonds comes with a corresponding risk of default.
But even with the slightest risk, interest rates can still be acceptable. At many offshore locations, they are around 4 to 8 percent, which means a safe and good increase in wealth. Of course, not all offshore banks charge interest. Banks that do not lend money will not pay interest to their customers either.
The highest security goes hand in hand with lower interest rates.
Except for negative interest rates - the alarm bells should ring. But when interest rates are low, there are still investment opportunities in the global equity and currency markets.
12. Easier access to certain markets
Especially interesting for entrepreneurs, but also for some private investors, is the leasier access to certain markets an argument. Reasons for an offshore account can be that the offshore bank can shine with contacts to local producers or buyers. Alternatively, an offshore bank can offer to process transactions in a little-known currency, which is, however, extremely interesting for investors due to its price development.
The possibilities that an offshore account can offer are many.
With the clever choice of bank and location, investors have opportunities that they previously only dreamed of.
Easier access to booming markets can pay off financially for you!
13. Support for citizen-friendly small states
Last but not least, offshore banking is one too moral consideration value.
Do you support banks whose money-lending system is based on the fraudulent partial reserve system, or do you prefer those who conduct banking with honest means? Do you support big banks that finance wars, cheat small investors and bribe politicians? Or do you invest your money with sustainable regional employers?
What is true of banks is even more true of states.
Do you choose a jurisdiction that sees the citizen as a customer or as a subject?
Offshore you are king, onshore you are a slave. Offshore destinations simply have no other option to treat both citizens and strangers well. Due to a corresponding lack of resources, capital and labor, they are dependent on tourists bringing in foreign currency for holidays and foreigners in general for other services. Angering them in any way will quickly bring about the ruin of the country. They know that themselves. Due to their small size, they usually play no role in geopolitics, neither wage wars, nor do they have civil wars, and they only monitor their citizens slightly. Taxes are bearable for locals and at the best for you. You'd be stupid if you didn't take the chance!
Reasons for Offshore Account can therefore come in many forms.
In essence, you insure against risks, open up new opportunities and, depending on your own political preferences, you may also act more ethically!
Opening an offshore account is not difficult - you can start today to protect yourself from tomorrow.
Which reason do you like best? Which one did I leave out? Write me what else you would like to know about offshore accounts!
More information on offshore banking can be found in my brand new book: "Because your money is yours: safely through the crisis with offshore banking", which you can now purchase directly from my website. There you will find detailed information on all aspects of asset protection and a comparison of over 50 countries with 200 banks!
More information about the ebook here
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Always be informed!
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Category: Around the World Opportunities, Flag Theory, Offshore Strategies, Perpetual TravelTags: Banks, Cash Ban, Reasons for an Offshore Account, Capital Controls, Offshore Banking, Offshore Accounts
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