Location independent entrepreneurs and digital nomads understand the importance of being able to access money "on the fly". Sometimes literally, while you’re in the air, on your way to the next destination! The trouble with this lifestyle is that you're running a business while moving about internationally, from country to country. It's unfortunate, but cash and even credit in your home country can become unavailable when you enter certain destinations, for any number of reasons.
Often called a "global citizen" there are several issues that can crop up, and the issue of losing access to your money is just one of them. Often, your money just isn't as secure as you might think if you're living in the US, Canada, mainland Europe, the UK, and many other jurisdictions that are often not associated with the idea of offshore banking as most of the world understands it.
Is offshore banking legal?
Of course. This article isn't about setting up an account in the Caymans to hide drug money. Nor is anyone suggesting you use it to hide earnings from your government. In fact, there's never been a worse time in history to go offshore for this purpose. FATCA, AEoI/CRS and other similar agreements ensure that, if you're hiding money illegally - e.g., for tax evasion - your government WILL catch up with you at some point.
With that said, here are 4 totally legal and rational benefits an offshore bank account can offer you, the location independent entrepreneur, while you continue to travel. Whether that travel is for business, pleasure, or both.
1. Political banking sovereignty
This first benefit will surprise many of you, but your money is never as safe as your local bank will tell you it is. In many cases, federal and local governments control all currencies within their country.
The world's (arguably) greatest financial superpower, the United States banking system, has the Federal Reserve at the top of the pyramid, and few banks within it rarely have more than a "few" dollars on hand for withdrawals. If something were to happen to the reserve or a financial collapse within the government were to occur, you're finished!
Keeping the US in the spotlight, consider their massive debt load and the fact it's growing faster than any other country on the planet, dollar for dollar. It doesn't matter if you're doing good, or that all your money is supposedly insured. When the money disappears, that means insurers like the FDIC in the US also have no money. Additionally, they only insure up to $250,000 per account. Even if you keep multiple accounts in the same country, if the collapse happens, you guessed it, you're still finished.
True offshore bank accounts, such as those in the Caymans, Netherlands, Singapore, etc., aren't controlled by governments, and thus pose much less risk for assets to be lost or frozen.
Go figure.
2. Preferential foreign exchange rates
Sure, many mainstream banks are offering low or no fee exchange rate bank and credit card accounts for frequent travelers. Even without those fees in place, they still set the exchange rate you're going to pay, regardless of what your favorite currency app is saying the interbank rate is. They set a rate they're comfortable with. Kind of like how PayPal 'steals' from their users by making up their own "lower" exchange rate with currency exchange transfers.
Reputable, highly-used offshore banking destinations will offer much higher exchange rates and lower transaction fees when you need to convert USD to Euros, Yuan, Renminbi, Dong, Won, etc. This is because they value your business, and since they're privatized, they don't have to steal your money to help pay off the national debt or protect themselves from sudden currency rate fluctuations. These are often referred to as "multi-currency exchange accounts" which are designed specifically for travelers and entrepreneurs who deal in receiving and spending multiple currencies on any given day.
3. Higher interest rates with offshore banking
Low interest being offered on your money is yet another major issue when you hold all your cash in a debt-ridden country - e.g., the USA - that distributes money based on faith, rather than tangibles like gold and bullion that have actual value.
Since they don't have that cash or anything of tangible value on hand, it's much harder for them to make the types of investments offshore banks can make with your money. Faith-based currency holds much less weight for global investing, and investing is how banks make the profitable investments that turn into the number they return to you as interest earned on your money. They also don't have Federal Reserve and other banking oversight overhead expenses to pay out, meaning they'll pay you (much) more than your local bank.
4. Investment diversification
It should be obvious that nobody's telling you that you shouldn't keep some of your money onshore. The idea of going offshore is to protect and diversify where your cash is held. That way if the banking system in a given country shuts down, you're not left starving or homeless wherever in the world you might find yourself. However, investment diversification is a big benefit to offshore banking.
Many jurisdictions around the world won't allow foreign investment at all without a local bank account. This leaves you out of the loop if you want to invest in a new high-rise development in China and you're an American. Then, there are mutual funds and other country-specific investment funds making trades and winning the stock market and currency war every day. An offshore account opens you up to foreign investment groups.
After all, most people don't rely on a single bank or investment firm to keep their money working while they sleep -- every offshore account you invest through is like putting another team of financial geniuses to work for you every day.
Takeaway
Again, nobody's here to tell you it's flat out stupid to keep your money onshore. Simply put, it's just foolish to keep all your money, even most of your funds in your home country. As a location independent entrepreneur, dealing in multiple currencies, in multiple worldwide locations, you're always at risk of being left out in the cold, or stuck outside in extreme heat, without any cash.
Consider holding your money in multiple on and offshore locations. The old saying goes "Don't keep all your eggs in one basket." Why? That basket gets dropped and you lose everything. Aside from losing money, don't forget the money-making benefits of diversifying offshore, such as higher interest rates earned, lower currency exchange fees (and higher rates), and how offshore banking opens up more investment opportunities.
NOV
2018
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