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Holding an offshore account is a great way to protect your assets from a variety of threats. This blog will outline exactly what an offshore account is, why you should consider getting one, and how you can do it.
Quite simply, an offshore account is a bank or investment account held outside your country of residence. Offshore accounts can be highly advantageous, this blog will list 5 of the main benefits.
Each year we see a different countries finding themselves in political instability. There are no countries which can be considered exempt from potential political turmoil. There are, however, countries which are more vulnerable to political unrest. In the past 12 months, we have seen Hong Kong, Venezuela and Lebanon experience political instability. In the cases of Lebanon and Venezuela we have seen banks place strict withdrawal controls on depositors.
Political instability is difficult to predict – holding your money offshore can ensure your savings are not effected by political instability in your country.
Many governments around the world are insolvent. Governments often employee certain emergency measures when they become unable to pay their debt.
Bank bail ins: In Cyprus we have seen ‘bail-ins’ be used whereby a financial institution that is on the brink of failure by forcing its creditors and depositors to take a loss on their holdings.
Taxes on Bank deposits: Spain implemented this strategy
Nationalisation of Retirement Savings: In countries like Poland, Hungary, Portugal and Argentina.
Capital Controls: has been seen in Iceland, Lebanon, India, Brazil and Indonesia and we have seen capital controls be employed.
If you have large amounts of capital being held in a bank account, you are an easy target for governments in economic trouble. Offshore accounts can provide you far higher levels of security.
Most banks are highly leveraged. In most countries, legislation dictates, that banks are required to keep a small amount of their assets in liquidity. The remaining deposits, are usually invested in order for the bank to turn a profit. If there is ever a rush on the banks, for perhaps, the reasons listed above, then it is unlikely the banks will be able to return all of your capital to you straight away.
Banks who find themselves in financial difficulty will take on higher and higher degrees of risk to attempt to balance their books. Depositors are very rarely consulted about the investment decisions taken with their money. Many stable jurisdictions like the Isle of Man or Guernsey have low levels of debt meaning do not gamble with customer deposits.
How much are you gaining from keeping your money in your local bank? Are actually losing value in real terms? We now see across the world historically low interest rates, meaning depositors are being offered interest rates often around 1% per-annum. With inflation rates often triple that, the real value of your savings is likely to drop by 2% each year when left in a bank.
Holding your money in an offshore account provides you with access to greater levels of security and the option to seek out superior investment options.
As the age old saying goes ‘don’t hold all of your eggs in one basket’. The same rule applies to holding currency. Especially, volatile currency. Over the past few years we have seen certain currencies drop in value considerably overnight. Examples of this include the Turkish Lira, South African Rand, Venezuelan Bolivar and Egypt Pound.
Holding money offshore in currencies with greater levels of historic stability like the US dollar and Swiss Franc can mean your assets are less exposed to currency risk.
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