With the world in chaos and bankrupt governments everywhere dreaming up new schemes to grab their hard-earned money, more and more people are looking abroad for a place to move some of their assets.
I don’t encourage you to sit back and wait for some three-letter agency to step in and decide to dip into your retirement funds or raise your tax rates or devalue your money by turning on the printing press. In a connected world, opportunities outside of your home country are everywhere, and to make the most of your money and freedom, you need to explore those options.
There is nothing illegal about having a bank account abroad. For now. While Hollywood has created a scene in which offshore banking is criminals carrying briefcases or guys in Tommy Bahama T-shirts flying propeller planes on tiny island airstrips, nothing could be further from the truth. . His government does not want him to transfer money to another country because it is more difficult for them to pay taxes.
When I said it’s not illegal “for now”, I mean you can never know when things will get so bad that any loose change that can be made to prop up a country in crisis will be taken without a second thought. The debacle in Cyprus has shown us how desperate things can get. Sure, the EU can turn it into a tax on 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 wants you to believe that the only people who keep their money abroad are crooks and crooks. Never mind the six million Americans who live and work in other countries. As such, they have imposed a draconian set of rules on foreign banks, basically turning them, as well as their sovereign governments, into a bunch of gossip for the IRS. Some banks have completely given up on Americans. But there is still hope.
First, get rid of the idea that “offshore” means a place where you can sit on the shore. Islands with crystal clear waters are not high on my list of offshore jurisdictions. If you are an American, anywhere outside of the United States is an extraterritorial jurisdiction. Think of Hong Kong, Singapore, Chile, etc. While also associated with offshore banking, Switzerland is no longer available to Americans, thanks to IRS crackdowns there that have led most banks to avoid US citizens.
Second, know that the days of numbered bank accounts and intense secrecy are over. Just ask the millionaires who were turned over to the United States government. There are several short forms you’ll need to fill out each year, one with your tax return, another sent separately. If you are a US citizen or resident, you must report any account, or combination of accounts, with a value of at least $10,000 at any time during a calendar year.
Third, focus on your goals. Once you’ve gotten past the clichés and hype about offshore bank accounts, you can focus on what you really want. No, you are not going to be able to hide a lot of money from the tax authorities. Yes, you will have to pay home taxes on any interest you earn. But while your account won’t be a secret to your local government, it will be separate from them. Some bureaucrat with a fat toe won’t be able to freeze his account with the press of a key. It will be harder for an ambulance chaser to hit. And while you’ll have to pay US taxes on the interest earned, that interest rate could be double, triple, or even fifteen times higher than what you’re earning now.
Determine what you are looking for in a bank account. Want a simple place to keep your savings out of the dirty hands of your local government? Do you want to keep some of your money in a different currency or currencies to lower 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 sophisticated wealth management tools and a private banking service?
Fourth, once you know what you’re looking for, find the environment that’s right for you. The good news is that most of the above goals can be achieved with almost any offshore account. Simply having a portion of your assets outside of your home country gives you more freedom. If the government here goes Argentine and imposes capital controls, you will 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 multitude of currencies. Do you think the Australian dollar will rise on the back of a resource boom? No problem; you can save it to your account. With most banks, you can switch to another currency later if you change your mind. Often you can have multiple currencies in the same account at the same time.
In Andorra, for example, you can write checks in any currency the bank offers. 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 outperform the US or most other “safe” banking jurisdictions. The banks are locally managed by banking families who provide a personalized service.
Because offshore banks offer multiple currencies for banking, you can also choose your interest rate. While rates in the US are close to zero, making savers 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 that offer Australian dollar deposits, routinely offer interest rates in the neighborhood of 5% on savings, even short-term savings, at a time when you’re lucky to get 0.75% on an online account in the US If you want to expand into 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 higher interest, places like Georgia, a small but economically robust emerging nation in the Caucasus, offer interest of up to 7-8% on medium-term deposits not in your local currency, but in US dollars. Georgia is one of the twenty most economically free countries in the world (the US is 10th) and is not a bad place to earn some extra interest.
Fifth, consider the risks. Americans are used to $250,000 in deposit insurance from the FDIC. Some countries, such as Mongolia, do not offer such insurance at all. Others have lower limits or do not insure deposits in certain currencies. For the most part, countries around the world have enacted deposit insurance plans of some sort to keep people’s money safe. But it’s up to you to research each jurisdiction and each bank and determine where you feel most comfortable.
Keep in mind that the FDIC, for example, holds less than the equivalent of 0.5% of all bank deposits in your fund. That’s not very safe to me considering the low capitalization of US banks. 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 then run to the government when things break.
The FDIC may pay if your bank fails, but consider the decline in the US dollar in recent years and in the last decade. The dollar is no longer what it used to be. If the US banking industry had another run of bank failures like it did in the recent recession, you would see more “Too Big to Fail” nonsense and, as a result, more money printed to pay off depositors. So you could get your money, but it wouldn’t be worth that much.
Of course, deposit insurance didn’t do much good in Cyprus, where the European Union basically forced the country to dip into bank accounts, first 7-10%, then much more, to avoid bankruptcy. Tens of thousands of dollars of your money could have been wiped out in an instant, with no way to get it out, as the government kept banks closed until they could figure out how much of your money was stolen.
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 couple hundred dollars or even less. In some cases, you have to visit the country, which could be easy if you live near the Canadian border, for example, or are going on vacation soon. However, there are banks in Norway, Gibraltar, the Channel Islands (UK) and elsewhere where you do not need to visit to open your account. You can do everything through the mail.
When you realize all the things going on in the world today, you may wonder why you didn’t look into taking a bank account out of the country sooner.
