Many people think opening an international bank account is a great way to hide money and increase one’s savings. In actuality, while it is not advisable or even easy to open an international bank account for tax evasion, there are a number of advantages to having these accounts that make them a good choice for some people.
Advantages to international bank accounts
Those considering opening a bank account to hide their money from the government need to keep in mind a few points:
While it usually does not violate any laws to open overseas accounts, different nations have various legal requirements for reporting such accounts and any income from therm. International treaties and more sophisticated government monitoring have made opening secret accounts more difficult and increased the chances that those who do will get caught.
The income from overseas investments must be reported by law, and the penalties for not reporting income from these accounts are stiff. Foreign bank accounts covers the requirements and penalties of declaring this income for US citizens.
However, there are other advantages to having international bank accounts. People who frequently travel to or do business in other nations can often save a lot in exchange and transaction costs when they have these accounts. In addition, through international bank accounts, investors can sometimes take advantage of higher interest rates.
Although many consider this akin to gambling, it is also possible to use international bank accounts to take advantage of currency fluctuations. For example, if you have US dollars and the dollar is strong, it may be a good time to use dollars to purchase other currencies or make investments denominated in foreign currencies. If the value of the dollar then drops, the same investment will suddenly be worth more US dollars. When the dollar is weak, purchases made the other way can bring similar gains.
Of course, nobody can be certain which way any currency will move. Therefore, you have to proceed with caution when making these decisions. At the very least, using foreign currency accounts to hedge against any one currency rising or falling can act as a way to keep savings more stable.
Even if it is not from the government, international bank accounts can sometimes offer a greater degree of privacy from creditors and others. Finally, the principle of diversifying to other countries is a good idea in a world that is increasingly integrated in so many ways.
For those interested in hedging their currency without going through the trouble of opening an overseas bank account, it is always possible to invest in foreign currency in their home countries through foreign currency ETFs or mutual funds.
Disadvantages of foreign bank accounts
While foreign banks may promise high levels of deposit protection, this is not always the case, so there may be some potential risk. Furthermore, many of these accounts have high minimum deposit requirements and other fees. Finally, although most international bank accounts offer internet banking and banking by phone, it may be more difficult to access funds that are overseas.
Opening an international bank account
With new rules to crack down on terrorism and money laundering, opening bank accounts in most countries has become more difficult. Those opening foreign bank accounts can expect to be required to offer various forms of identification, notarized documents and other paperwork. In addition, it is impossible to open accounts in many countries, unless you are a resident in the country the account it is located in.
Therefore, everyone considering opening international accounts first need to decide what country or countries they would like an account in and see what the rules are for that country. Even if that country does allow non residents to open accounts, it may be necessary to do it in person.
For those who do not have any reason to travel to the country they would like to open a bank account in, it is sometimes possible to open an account through an international bank with branches in both their home country and the country they would like an account in. If the bank allows it, the process involves going to a branch of the bank in your home country to take care of documentation that will then be used to open a foreign account in another country that bank has branches it.
Other points
Currently, some of the most popular places to open international bank accounts include Panama, Hong Kong, The Cayman Islands and The Bahamas. In addition, while the above covers individuals, there are other options for businesses.
