I haven’t written much about disadvantages and in recent years list of disadvantages has definitely got much longer. This article is going to concentrate on various disadvantages of offshore banking sector that you should be aware of before you decide to get an account.

Security issues

Firstly offshore bank accounts can be considered less secure financially. This is all down to what bank and what jurisdiction you choose of course and there are cases where it is completely opposite. With world banking crisis in 2008 the only savers who lost money were the ones using offshore branch of an Icelandic bank in the Isle of Man. They did not receive a full refund even after 11 months, by mid November 2009 though 90% of the Depositors were paid. To make sure the same thing doesn’t happen to you you should always weigh all the terms of the bank.

Most of the jurisdictions guarantee certain amount of the deposits. Isle of Man deposit sums were guaranteed £20,000 – £50,000. Often enough offshore banking jurisdictions have lower guarantees than in non-offshore jurisdictions. If you find a favorable jurisdiction but the guarantee is too small for your deposits then you can usually open accounts in different banks in the same jurisdictions and all these accounts will be all guaranteed by that amount. Best option would be to open accounts in different jurisdictions if possible to minimize risks ever further. In any case, depositors should be aware that any deposits over the guaranteed amount are at risk and offshore banking jurisdictions may guarantee much less than at your average bank although their savings account interest rates may be lower.

Offshore banking has also been associated with money laundering and organized crime. After September 11, 2001 offshore banks, tax havens and clearing houses were accused of helping terrorist groups and organized crime. According to IMF between $600 billion and $1.5 trillion of illicit money is laundered annually which is about 2% – 5% of global economic output. Offshore is where most of the world’s drug money is allegedly laundered. In 2006 there were series of articles published which revealed that Treasury Department and the CIA had a program to access the SWIFT transaction database after the September 11th attacks which render offshore banking for privacy severely compromised for US.

Accessibility

Offshore jurisdictions are usually remote and this means that it can get very expensive to physically visit your bank. Today with advanced global telecommunications this is rarely a problem though as accounts can be set up online, using phone or email. Still for individuals who require physical access or access to documents that can’t be sent over the internet it means extra expenses not common with “onshore” banks.

Besides physical access being a disadvantage these banks are often also more accessible to individuals with higher income. Costs of owning offshore accounts can be much larger than with your regular bank account. Most of the time this isn’t a problem with simple savings accounts though. Historically when there have been tax cuts then this has resulted in high-income groups paying the higher proportion of the tax take. This happens because previously sheltered income is brought back into the mainstream economy.

Summary

Offshore bank accounts have been advertised as a solution to every legal, financial and asset protection strategy but this is often too exaggerated. There are many ways to look at it but in the end you just have to analyze if this is viable option for you or not. Is it accessible considering your income level and if it is are there any risks that you are not able to handle.