Offshore banking

Offshore banking has always been seen as the province of the rich and famous with accounts in tax havens such as Jersey, Switzerland and the Bahamas.

Certainly the image of the well-heeled or criminal classes flying off in private jets to stow their treasures in banks in glamorous locations, with the keys to their exclusive safety deposit boxes, does nothing to dispel this image.

However, technically, offshore banking simply refers to anyone with a bank account outside his or her country of origin, typically in a low-tax area. In recent years increased property prices have led to individuals with normal jobs and salaries left with large profits from the sale of property to deposit, and therefore such accounts have become more commonly owned.

The advantages of offshore banking are that it may provide those living in an unstable political climate to invest their money safely overseas. It can also offer offshore companies, trusts or foundations specific tax advantages.

However, the disadvantages can be that in the event of a financial banking crisis, offshore accounts can be less financially secure, leading to depositors having to wait a long time for compensation. Offshore jurisdictions are also frequently remote and costly to get to; though today this is less important, due to immediate online and telephone banking facilities.

When considering which account to choose, however, offshore banks generally offer the full spectrum of banking services including deposit taking, offering credit, wire and electronic funds transfers, foreign exchange, letters of credit and trade finance, investment management, fund management, investment services and corporate administration.

It is worth remembering, however, that High Street bank accounts offer many of these services. They are also frequently readily accessible and offer competitive interest rates, particularly through instant access savings accounts and individual savings accounts (ISAs). These factors may outweigh the glamour of offshore banking, particularly if you value face-to-face service.

Of course, there are social advantages to having an offshore bank account. Even if you open your Swiss bank account on holiday, it will always sounds impressive and imply that you're wealthy and financially aware, even if you don't strictly need one.

The account will also protect your funds from creditors in instances of financial liability, as offshore bank accounts are governed by the law of the country they are in rather that the country in which you are domiciled.

However, in the event of an international banking crisis, your funds may not ensure the same financial protection in an overseas bank account as they would in the UK.

Most UK balances under £50,000 are protected by the UK government. If they were invested abroad and there were a national accounting scandal, natural disaster or political coup, they may be extremely vulnerable.

It is also important to remember however, that while setting up an offshore bank account is not illegal, setting up such an account for an illegal purpose may well be. If you're accused of tax evasion and have sent the money to an offshore account, for example, you may still be arrested here, even though the funds may remain untouched.

All in all, it's better to play it safe. If you fancy the international cachet, can secure substantial and legal tax advantages and are investing in a stable economy unlikely to fall prey to political upheaval or disaster, then opening an offshore account may be for you. However, if you prefer to deal with a bank manager face to face, a domestic high-interest account may be a better bet.