While
there is no perfect place, the better countries are easy
to
choose: they must have banking secrecy, no withholding
taxes
for foreigners, or if there is a withholding tax, it must be
easily
avoided as it is in Austria or Switzerland by means of a
"fiduciary
account". A fiduciary account is simply an account
established
for you at another bank by your own bank, and
kept
in the bank's name. Also important , is political stability,
an
unblemished history of honest dealings with foreign
investors,
and a long tradition of no government confiscation
of
private assets. There must be no information exchange
treaties
or other arrangements with your home country and
none
on the horizon. Obviously the bankers of your banking
country
should be fluent in your language. Fortunately,
English
is the universal language of international banking,
business
and the airways as well. So unless you bank strictly
locally,
any major international or offshore bank will have
officers
that you can communicate with in English.
Outside
of Europe, it is probably best to deal only with a
branch
of a major bank whose home base is not your home
country.
Your offshore bank preferably has no branches in
your
home country that could be pressured to force them to
reveal
your account details or worse yet, freeze your account.
Thus
if an Englishman was going to have an account in the
Caribbean,
first choice might well be a Swiss, Danish or Dutch
bank
- never a British nor (for safety's sake) a one horse
local
outfit. The account for a Brit for instance should be in
the
Antilles (Dutch) not Cayman (British) If I were an American
I'd
stay far away from any de facto American colony like
Puerto
Rico or Canada, or any American bank like Citibank,
Bank
of America etc. Come to think of it, even if I were not an
American,
I'd stay far away from American Banks no matter
where
located. They are all quite shaky. The Federal Deposit
Insurance
Corporation is insolvent and American Banks (and
stockbrokers)
are generally subject to the whims of the
current
political administration at home. The largest banks in
the
country, Continental Illinois and Bank of America, went
through
the equivalent of insolvency in recent years. The
same
instability would be true of all but the biggest Japanese
banks.
Never
deposit two pence in a third world bank like Banamex
(Mexico),
nor any Arab bank; and remember BCCI
(Pakistan)?
The Muslim idea of banking is so foreign to the
English
speaker that there is no common ground. Receiving
interest
from a bank (or paying interest under some
interpretation
of Islamic Law) is an offense that gets your
hands
amputated or in some countries you might be shot. I
am
not joking. This is the law in Iran. I would not deposit my
money
in any offshore branch of a bank with such rules in the
home
country. As to general morality and honesty, some
Mexican
bankers I have known make Jesse James and John
Dillinger
look like honest men in comparison to them. And
while
I'm throwing stones, the Mexican Government has a
long
tradition of luring in foreign investment and then
confiscating
it. That leaves the major European banks as just
about
the only serious choices for stashing serious money.
The
best countries are Britain's offshore islands, plus
Luxembourg,
Switzerland and Austria. Austrian banks and
Savings
Institutions will even open a totally anonymous
passbook
account where the bank itself doesn't know the
customer's
name and address.(See our guide "Establish a
secret
bank account before it's too late").
Banks
of ex-communist countries are now courting this
offshore
private investor business, and there are plenty of
banks
pumping for "High Net Worth Private
Clients" in places
like
Hong Kong, Panama, Costa Rica, Malta, Uruguay and
Gibralter.
The vast majority of people and politicians of most
of
these countries are leftist, as in Mexico and most of South
America.
When times get tough, the local politicians think first
of
defaulting on their international obligations and second, of
confiscating
the local assets of foreign depositors and
investors.
Where
does one get the best interest rates and
management?:
In recent years, interest rates in most
countries
have gyrated from double or even triple digits to
low
single digits. The "true rate of return" is generally
considered
to be the interest paid less the (anticipated) local
inflation
rate, less withholding taxes. Thus when the rate of
interest,
for instance, in the USA is below 12%, with 6%
inflation
and a 6% effective tax the American investor gets a
negitive
return.
In
1992-93, some first class German banks paid 10% per
annum
interest with no withholding tax and historically low
inflation.
This is an all time high for Germany where the
inflation
rate since 1945 has been under 3% per annum in
most
years, and there is no withholding tax on interest paid to
foreigners.
In the US, for instance, during the same period,
where
inflation has averaged around 10%, interest rates hit
below
4%, an all time low. Thus the important thing to
remember
is to read the financial papers, keep up with news.
Place
your funds in bonds or for nice long periods like a year
or
more when you are convinced that interest rates are
peaking
out. If you buy medium to long term bonds, when
interest
rates go down again, you can sell the bonds at a big
capital
gain. Some investment letters have a good record at
recommending
when to get in and out of bonds.
One
reason that people are afraid of making a deposit or
buying
a bond in a foreign currency is the "currency risk". As
long
as the interest rate is good, you do not have to
reconvert
on the sale of the bonds to the original currency
with
which you bought the bonds until that currency shows a
profit
advantage to do so.
The
pound sterling is recommended by many in the world,
and
it is possible to have your deposit account held in
sterling
even with foreign banks - in fact you often have a
choice
of different currencies in which to hold your account.
To
make exceptional yearly interest rates on your account
you
first need a reasonable interest rate from the bank; have
no
withholding tax deducted, and thirdly play the exchange
rates
to add to your profit. We know of no bank anywhere
that
offers a 20% interest rate, so to aim for an overall
interest
rate of 20% plus requires the careful investment in
good
bank rate, no tax on interest, and play to your
advantage
the exchange rate differences when converting
from
one currency to another.
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