Every decent thriller involves some form of off-shore accounts. Usually, the bad guy either wants his “ransom” money transferred to one of those accounts, or someone has stolen money and parked it in the Caribbean. If your only knowledge of foreign accounts come from movies, you probably think they’re totally shady.
Actually, it’s not like that at all. Yes, there might be some shady transactions going on, but if you’re looking to diversify your investment portfolio and possibly earn more interest than an American bank might offer, foreign savings might be the way to go.
The Foreign Bank Account Advantages
There are two components to saving money overseas. The first involves putting your money into a foreign bank and setting up an account there. First, you’ll have to make sure you have access to that account online. You’ll find many foreign banks operate on the same principle as domestic banks: They want you to have online access. That means you can transfer funds without hopping on a plane.
A foreign bank account might offer lower fees than an American bank. They might also have higher interest rates. A simple savings account could pay upwards of 6% overseas, whereas in America, that account would only yield 1%.
The caution is the amount of time it takes for a transaction to clear. A foreign bank account also lets you have access to an online gambling account. Right now, U.S. law prohibits making money from online gambling through a U.S. bank. In other words, you could gamble and win but not be able to get paid unless your money goes to a foreign account.
The Foreign Bank Account Drawbacks
With diversification also comes risk. Your money in a foreign bank isn’t protected like it would be in the U.S. There is no overseas version of the FDIC. If the country’s economy where your money is parked goes belly up, you could lose those savings, and there wouldn’t be a lot you could do about that.
There is also the added burden of IRS filings. You’ll need to complete a Report of Foreign Bank and Financial Accounts form for every tax filing. This doesn’t mean you’ll be paying taxes on that money — you just have to let the IRS know it’s there. If you fail to file and they find out, you could be looking at a major fine.
Things also get a bit dicey when it comes to your estate. Anyone you leave that money to would probably have to pay the estate tax of that country before they could transfer out the funds. That all adds up to a lot of extra paperwork and record keeping.
Saving Foreign Currency
You could invest in foreign currency much like you would invest in any other type of commodities. You don’t need to set up a foreign bank account for this, but instead, you would need a brokerage account with a reputable firm. This is not unlike investing in a particular stock, but instead of playing the long game with stocks, you would probably need to pay closer attention to foreign currency investments. That is because they can tend to be a bit more volatile.
It would mean trusting your broker or keeping an eye on foreign money markets and constantly trading back and forth. It might be fun to play at that, but it would be hard to make serious money unless you’re willing to invest a lot of capital.
When it comes to putting your money to work, all options should be on the table, even if those options take you overseas.