Does the phrase “offshore bank account” make you picture a cigar-smoking billionaire wiring money to a secret vault in the Cayman Islands? Hollywood (and history) give offshore banking somewhat of a bad rap. In reality, offshore bank accounts can be useful money tools for many Americans, particularly those opting to move abroad for work or retirement.
Since it’s not reserved for Bond villains or billionaires, what exactly is offshore banking? When does it make sense for someone to open their own offshore account? Let’s clear up some misconceptions and explore why having money abroad doesn’t really mean you’re up to no good.
An offshore bank account is any bank account held in a country where you don’t live. That’s it, simple enough.
If you’re a U.S. resident and open an account in, say, Canada, England, Singapore, or any country aside from the U.S., that’s considered an offshore account. The term “offshore” just refers to geography.
Offshore accounts work much like the ones you have established in America. Once opened, you can hold funds, make payments, receive deposits, or set up savings and investment accounts. Depending on the bank, you may be able to do so in multiple currencies. Many international banks even let you choose which currency to hold your funds in, making it easier to manage your finances across borders.
While certain countries like the Cayman Islands or Switzerland have garnered reputations as offshore banking havens, they certainly aren’t the only countries to choose from. Dozens of nations around the world offer offshore accounts, each with their own potential benefits, criteria, and protections.
When opening an offshore account, you’ll need to provide many of the same documents you would when opening a domestic, U.S.-based account.
In addition to verifying your identity and proving your physical address, some offshore account providers will ask for more information regarding the money that’s expected to come in and out of the account. They may ask for employment documentation or other proof that the funds will be legitimate—likely in an effort to crack down on illegal activity.
If you live, work, invest, do business, or retire abroad, an offshore account can help simplify your financial life. Instead of juggling multiple local bank accounts in multiple countries, one account is used for transactions across borders.
For example, if you’re an American consultant who spends half the year in Portugal and the other half in Florida, keeping an offshore account can make it easier to receive payments, pay local bills, and avoid constant currency conversions.
Like a global “wallet,” many offshore accounts allow you to hold and move money in multiple currencies. Say you’re paid in euros but spend dollars, for example. Instead of relying on your local bank’s foreign exchange fees, you can choose when and how to convert currencies through your offshore account.
Some offshore banks even offer investment or savings products not easily available in your home country, as well as access to guidance from international financial professionals.
If you’ve ever moved overseas (even temporarily), you might recall how messy international money management can get. Many expats keep a U.S. bank account for savings or Social Security deposits, open a local account in their new home for day-to-day life, and then add an offshore account to bridge the gap.
Here are some other people who might benefit from an offshore bank account:
The rise of remote work has created a new group of global earners who collect paychecks in one currency, spend in another, and sometimes pay taxes in a third. If you’re a freelance designer being paid in pounds while living in Thailand but saving for a home back in the U.S., having an offshore account can help manage those multiple currencies cleanly. Otherwise, you may feel limited by a domestic bank that wasn’t designed for a multi-currency lifestyle.
Business owners with customers, contractors, or offices in multiple countries often use offshore accounts to handle payments more efficiently. Instead of wiring funds from a U.S. bank to pay employees in Europe (and incurring costs every step of the way), they can use an offshore account to streamline and centralize their operations.
If you’re a pilot, international salesperson, or someone who travels frequently, an offshore account may help streamline currency access and make it easier to pay for accommodations or services in countries you visit regularly.
Sending money to family overseas? Paying for a child’s school fees in another country? Supporting aging parents who live abroad? Having an offshore account can simplify transfers and reduce the fees that often accompany cross-border payments.
If you own property abroad, receive rental income in a foreign currency, or hold international investments, keeping an offshore account can keep those transactions tidy. You may be able to avoid converting currency or funneling everything back through a U.S. account.
While offshore banking can be useful, you’ll still need to consider whether it’s the right option for your financial life and needs. Here are a few important factors to keep in mind before opening a foreign bank account:
U.S. citizens and residents must declare all worldwide income to the IRS. Income and interest earned in an offshore account must be included. In fact, Americans with more than $10,000 total held in foreign accounts must file a separate disclosure called the FBAR (Foreign Bank Account Report) each year.1 While you may be eligible to exclude some foreign-earned income, it still needs to be reported.
Some offshore banks charge higher fees than domestic ones. Do your research when selecting a host country and institution, as you may be required to pay monthly or annual maintenance fees, wire-transfer fees, or foreign exchange charges.
U.S. bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000 per depositor.2
This consumer protection doesn’t extend to offshore accounts. However, depending on where your account is located, similar protections might exist under the host country’s financial safety rules or federal regulations.
Historically, offshore accounts were a convenient way for some wealthy individuals (and corporations) to hide income or evade taxes, which made for great headlines and even better movie plots.
But laws have changed over the past few decades. International reporting standards, anti-money-laundering regulations, and U.S. disclosure requirements have made it more difficult for citizens to use offshore accounts for tax evasion or other crimes.
Today, offshore accounts are legitimate financial tools for people whose lives and finances span multiple countries. In fact, large global banks often have entire divisions dedicated to serving expats, retirees, and international professionals.