With the world in chaos and bankrupt governments everywhere hatching new schemes to get their hands on your hard-earned money, more and more people are looking offshore for a place to move some of their wealth.
I’m not encouraging you to sit around and wait for some three-letter agency to drop in and decide to dip into your retirement funds or raise your tax rates or devalue your money by setting fire to the printing press. In a connected world, opportunities outside your own country are everywhere, and to make the most of your money and your freedom, you should explore those options.
There is nothing illegal about having a foreign bank account. At least for now. While Hollywood has created a scene where those banking out of the country are thugs carrying briefcases or guys in Tommy Bahama shirts flying prop planes to small island airstrips, nothing could be further from the truth. Your government doesn’t want you to move money to another country because it makes it more difficult for them to raise taxes.
When I say it’s not illegal “for now” I mean you can never tell when it gets so bad that any spare change that can be taken to support a failing country will be taken without a second thought. The debacle in Cyprus has shown us how hopeless things can get. Of course the EU can use it as a tax for the Russian mafia, but you know the government will always make an excuse for their dirty deeds.
As an American you are at a disadvantage thanks to FATCA – the Foreign Account Tax Compliance Act. Washington would have you believe that the only people keeping their money offshore are thugs and scoundrels. Let alone the six million Americans who live and work in other countries. As such, they have imposed a draconian set of rules on foreign banks, effectively making them and their sovereign governments a bunch of gossip for the IRS. Some banks have given up on Americans altogether. But there is still hope.
First, get rid of the idea that “offshore” means somewhere you can sit on the shore. Islands with crystal clear waters are not high on my list of offshore jurisdictions. If you are an America, anywhere outside of the United States is an offshore jurisdiction. Think Hong Kong, Singapore, Chile, and so on. Although it is also associated with offshore banking, Switzerland is no longer available to Americans, thanks to the IRS crackdown there that has led most banks to shun US citizens.
Second, know that the days of numbered bank accounts and intense secrecy are over. Just ask the millionaires turned over to the US government. There are several short forms you must complete each year, one with your tax return, another mailed separately. If you are a U.S. citizen or resident, you must declare accounts — or combinations of accounts — worth at least $10,000 at any time during a calendar year.
Third, focus on your goals. Once you get past the clichés and propaganda about offshore bank accounts, you can focus on what you really want. No, you’re not going to be able to hide a lot of money from the IRS. Yes, you must pay tax at home on the interest you receive. But while your account will be no secret from your own government, you will be separated from them. A fat-fingered bureaucrat won’t be able to block your account with one keystroke. It will be more difficult for an ambulance chaser to recover. And while you have to pay taxes on the interest earned in the US, that interest could be two, three or even fifteen times what you earn now.
Determine what you are looking for in a bank account. Want a simple place to store savings away from the dirty hands of your local government? Do you want to hold some of your money in another currency or currencies to reduce your sovereign risk? Do you want to earn a higher interest rate or benefit from the appreciation of a foreign currency? Or do you want advanced wealth management tools and private banking service?
Fourth, once you know what you’re looking for, find the right environment for you. The good news is that most of the above goals can be achieved with just about any offshore account. Just having part of your wealth from your own country gives you more freedom. If the government here sends Argentina on you and imposes capital controls, you have a nest egg that you can access elsewhere. Any good offshore bank will also give you a debit card to access your cash.
Unlike in the United States, most foreign banks offer accounts in a wide variety of currencies. Do you think the Australian dollar will rise thanks to a resource explosion? No problem; you can keep it on your account. Most banks allow you to switch to another currency later if you change your mind. You can often hold multiple currencies in the same account at the same time.
For example, in Andorra you can write checks in any currency that the banks offer. If you need that kind of flexibility, Andorra is a great place to bank. It is also one of the most stable jurisdictions in the world, with liquidity and capital ratios that blow over the US or most other “safe” banking jurisdictions. Banks are run locally by banking families who provide personal service.
Since offshore banks offer multiple currencies to bank in, you can also choose your interest rate. While rates in the US are near zero, causing savers to suffer, rates in Australia and New Zealand are much higher. The governments there did not play the race-to-the-bottom game that their Western counterparts did. Banks, both in Australia and those offering Australian dollar deposits, routinely offer close to 5% interest rates on savings – even short-term savings – at a time when you’re lucky enough to get 0.75% on an online account in the US. If you want to expand to an emerging destination like Mongolia, you can earn up to 15% on your money.
If you like the stability of the US dollar but want a higher interest rate, places like Georgia, a small but economically strong emerging nation in the Caucasus, offer as much as 7-8% interest on medium-term deposits, not in their local currency, but in US dollars. Georgia is one of the twenty most economically free countries in the world (the US is tenth) and not a bad place to earn some extra interest.
Fifth, consider the risks. Americans are used to $250,000 deposit insurance from the FDIC. Some countries, such as Mongolia, do not offer such insurance at all. Others have lower limits or don’t insure deposits in certain currencies. For the most part, countries around the world have enacted deposit insurance plans of some type to keep people’s money safe. But it’s up to you to research each jurisdiction and bank and determine where you feel most comfortable.
For example, keep in mind that the FDIC holds less than the equivalent of 0.5% of all bank deposits in its fund. To me, that’s not very safe considering how thinly capitalized US banks are. While local banks in Hong Kong and Andorra have very conservative lending practices and high liquidity ratios, US banks get money from the Federal Reserve and lend it out indiscriminately and run to the government when things go bust.
The FDIC can pay out if your bank goes bankrupt, but keep in mind the decline in the U.S. dollar over the past few years and the past decade. The dollar just isn’t what it once was. If the US banking industry went through another series of bank failures like during the recent recession, you’d see more “Too Big to Fail” nonsense, and as a result print more money to pay off depositors. So you could get your money’s worth, but it wouldn’t be worth that much.
Of course, a deposit guarantee made little sense in Cyprus, where the European Union effectively forced the country to open bank accounts – first for 7 to 10%, then much more – in order not to go bankrupt. Tens of thousands of dollars of your money could have been wiped out in an instant, without getting it out, as the government kept banks closed until they could figure out how much of your money to steal.
The good news is that having an offshore bank account isn’t shady, scary, or difficult to open. In some cases, you can open one with a few hundred dollars or even less. In some cases, you will need to visit the country, which can be convenient if you live near the Canadian border or are going on vacation soon, for example. However, there are banks in Norway, Gibraltar, the Channel Islands (UK) and elsewhere where you don’t have to come to open your account. It can all be done via email.
When you realize what’s going on in the world these days, you might wonder why you haven’t tried to get a bank account abroad before.