What is an Offshore Account?

Offshore account refers to a bank account opened in an offshore bank, located outside the country of residence of the end customer. An offshore account may be opened in the name of a private individual or an offshore company. An added level of anonymity is achieved in the latter case as all transactions are recorded in a company's name.

A typical offshore account may be a current (checking) or a term deposit (savings) account. The current bank account is designed for everyday use such as receiving and sending wire transfers, ATM withdrawals, transfers of funds between accounts. The term deposit account is utilized for savings and investments, often carrying a minimum deposit and a set term duration. The benefit of an offshore savings account is its tax-free compounding effect, which may offer substantial financial benefits in comparison to conventional financial institutions.

Due to the remote nature of an offshore account, internet banking plays a key role in the provision of financial services. It is not surprising that many offshore banks pioneered the implementation of online banking infrastructure. For an extra level of security, in addition to the standard password protection, online access to the offshore banks is accompanied by digital certificates, test key tables and/or various digital devices that generate a unique set of security codes.

Most offshore banks also issue credit and debit cards. Debit cards such as Visa Electron are widely used for withdrawals of funds from ATMs around the world and for store purchases. Banks often charge anywhere from 1.5%-3.5% transaction fee for withdrawals. In order to issue a credit card, such as Visa Classic, a bank usually requires a security deposit in the amount of or in excess of the credit limit on the card. Security deposits are used due to inability to access credit histories in an international context.

One could expect higher transaction fees with his/her offshore account. These may include any processing fees and higher wire transfer expenses. The latter are due to the use of intermediary banks when transferring funds internationally. Higher fees are also a function of added risk levels, higher operating costs and having fewer competitors. Nevertheless, offshore accounts generate substantial financial benefits when positive tax advantages are taken into the account.

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