How International Banking Works
International banking is sometimes perceived as a financial tool that is only for corporations and wealthy individuals. The fact is that there are offshore banking institutions that are willing to provide accounts to people in a wider range of income brackets. That also holds true for small business owners.
In order to determine if this type of financial strategy is right for you, it pays to learn how international banking works, why it’s worth investigating, and what maintaining international bank accounts could mean for your financial future.
Understanding the Basics
An international bank is a financial institution that provides different types of financial accounts to clients who are not citizens of the nation where the accounts reside. Sometimes referred to as offshore banks, these institutions may focus primarily on providing banking and investment services to individuals. Other banks of this type may concentrate on offering commercial or business accounts to qualified companies.
The policies, procedures, and general operations of an international bank must remain in full compliance with the laws relevant to the country where the bank is set up to function. Above and beyond that compliance, the individual institutions are free to set policies that are unique to their banks.
It’s important to remember that while international banks focus on providing services to foreign clients, they may also serve as the bank of choice for people who are residents but not citizens of that same offshore location. For example, someone who eventually plans to retire to that particular country would be considered an expatriate and be able to continue doing business with that same bank in the years ahead.
What Types of Personal Accounts Can You Establish?
Many offshore banks provide accounts that have counterparts with the accounts offered by domestic banking institutions. You won’t have any problem finding options that provide the same functions associated with checking accounts, savings accounts, and even Certificates of Deposit. The names may be slightly different, but they can be identified with relative ease. All it takes is going through the descriptions provided by the bank. Once that’s done, you’ll know which account type will provide the functions and benefits that you have in mind.
For example, a term deposit account functions much like a domestic Certificate of Deposit. You deposit funds in the account and allow them to remain there for a specified period of time. At the end of that period, you have the option of rolling the entire balance over for another term or withdrawing the interest to a demand deposit account and letting the principal balance fund a new term. You can also choose to transfer the entire balance of the term deposit account into one of your other accounts.
The same holds true for investment accounts. Many international banks either provide investment services or have connections with offshore investment firms that will set up accounts for the bank’s clients. If that’s what you have in mind for your offshore banking and investing, this type of arrangement makes it all the easier to transfer money from investments to your bank accounts, or vice versa.
How About International Business Accounts?
Business owners who want to establish international presences may find that working with an offshore bank is a smart move. The bank is likely to offer accounts that are ideal to house operating funds, payroll funding, and even time deposits that make it possible to house funds and earn greater returns.
It’s also common for offshore banks to provide what are known as Letters of Credit. They simply confirm that the business has the resources required to function within the country and possibly in other countries where there are specific types of economic or financial agreements in place. Those Letters of Credit make the process of buying and selling goods across borders simpler and more efficient.
What Will the Bank Require in Order to Set Up an Account?
Whether you’re planning on opening personal or commercial offshore accounts, there are documents that you must provide and qualifications that you must meet. Much of the effort can be handled online, although you may have to arrange for hard copies to be forwarded for review at some point. This may involve hiring an agent who resides in the country where the bank operates, or by providing hard copies when you visit the country yourself.
Individuals will need to provide documentation that establishes their identities. That can be in the form of a passport. Some international banks will also accept identification cards that include your image. For example, a driver’s license or a student ID with a picture included may suffice.
An individual will also need to provide documentation that establishes the person’s permanent address. This could be a utility bill or a bank statement that is signed and notarized. In some countries, a copy of the first page of a domestic tax return will be considered acceptable.
The individual will also need verification of your sources of income. This could be a check stub from your employer, notarized bank statements, or quarterly stock disbursement documents that confirm you receive those earnings on a recurring basis.
You will also need a bank reference from your domestic bank. The goal is to determine that you are currently a customer in good standing.
How About Setting Up Commercial or Business Accounts?
Just about everything that you would need to set up an individual account also applies to establishing offshore business or commercial accounts. Those who will be authorized to utilize the accounts will need to provide proof of address, identity, and the company’s current good standing with a domestic bank. Above and beyond those essentials, there are a couple more things that are needed to establish international business accounts.
You will need to provide a complete set of the company’s founding documents. That includes Articles of Incorporation, domestic tax documents, an organizational chart and any other company document that the bank requires. There’s no need to guess what will and will not be needed. The bank will provide a list of all company documents that are required.
One other essential that business customers must supply is a business plan. That plan helps to explain why you want the international account in the first place. It also provides the bank with some idea of how you plan on operating within that country and any other nation that has trade agreements in place with that country.
New Offshore Accounts and Minimum Balances
Both individual and business accounts often require some type of minimum deposit. Those deposits are required in order to begin earning interest off the balances. The expectation is that you will maintain those balances in order to continue earning interest.
Keep in mind that some accounts can be opened using deposits that are less than the minimum balance required. Until the amount in the account equals or exceeds that minimum balance, you will not earn interest on the deposits. Pay close attention to how the interest is applied and if there are any increases in interest if you attain a higher balance. That can be especially helpful if you’re planning on using the accounts to set aside funds for your retirement.
How Do I Manage My Offshore Accounts?
You can have a financial service professional manage your accounts on your behalf. There’s also the option of managing them yourself if you spend part of the year within the country where the accounts are based. For the rest of the time, many offshore banks offer online access to customer and business accounts.
In order to gain access, you must have credentials that are recognized by the bank’s servers. There is the option of updating those credentials from time. In fact, some international banks will require that depositors do so on a regular basis. This strategy helps to reduce the risk of account breaches.
Once you have access to your accounts, it’s possible to transfer funds between each one, check balances, or make deposits from your domestic accounts. Many offshore banks allow customer to arrange for debit cards or other instruments to use while traveling. At the time you establish the accounts, the bank will provide a complete list of tasks that you can perform using the online interface.
Do I Really Need Offshore Accounts?
Are there compelling reasons to establish offshore accounts? The answer is yes. Offshore accounts protect some of your assets from any type of political, economic, or legal issue that may be happening at home. You can often take advantage of more competitive interest rates and grow those balances faster. If you eventually plan on living in that country, those accounts help you establish a source of revenue to make the transition.
Business owners often find that the tax advantages offered within the country help them maximize the use of profits. They may also be better positioned to build customer bases within that nation and the surrounding nations. There may be the opportunity to make use of economic development incentives by establishing bank accounts and a physical presence within a given nation.
Would you like to know more about how international banking for businesses or individuals works and how this could be the right solution for you? Our banking experts at Caye International Bank on Ambergris Caye island in Belize have the answers to your financial questions.
Contact us today to get started.