Here are some reasons why it is advantageous to hold a portion of your savings in other countries:
- Banks in other jurisdictions may be safer than banks in your home country. For example, they may keep larger reserves, have more balanced loan portfolios, etc.
- This will vary to an extent from bank to bank, of course, but some factors such as prevailing regulations or depositor insurance solvency may make banks in one country generally safer than in other countries.
- Banks in other countries may offer better rates than in your home country.
- This is especially important if banks in your home country offer interest rates below the rate of inflation (or in some cases, even negative interest rates!) for savings accounts.
- Banks in other countries may offer better/more services than in your home country. For example, multi-currency accounts, being able to send wire transfers via online banking, etc.
- It is more difficult for your home government to freeze/confiscate funds held in a foreign jurisdiction.
- Depending on the prevalence of corruption / bureaucratic errors / civil asset forfeiture in your home country, this may be a worthwhile insurance policy even for law-abiding citizens.
- The currency your foreign account is denominated in may appreciate relative to your home currency.
- Note that some banks allow multi-currency accounts, so you may have the option to hold some of your money in a foreign country but still denominated in your home currency — giving you the benefits of geopolitical diversification without introducing FX risk.
- Opening a local bank account and maintaining a certain balance can help you to obtain residency visas in some countries, which may be useful/important to you, depending on your circumstances.
- If you want to make investments (e.g., real estate, brokerage account, etc.) or create a business in a foreign country, it can be convenient to have a local bank account there that you can use to receive payments and transfer funds in and out.
However, it should be noted that there are some drawbacks to holding funds in foreign banks:
- Depending on the country/bank (and in some cases, depending on the branch!), you may have to physically travel to the branch to open/service your account.
- You must take extra care to ensure your contact information is always up-to-date, and in cases where online banking security settings require sending a code via SMS, make sure you don't lose that SIM card!
- If you lose access to online banking, you may need to visit the branch in person in order to restore access. In rare cases (such as during the 2020 covid-19 crisis), international travel may be restricted or prohibited, which could result in you (temporarily) losing access to your funds.
- Transferring funds between your domestic account and your offshore bank account is usually (but not always) more complicated/expensive than transferring funds between domestic accounts.
- Be extra vigilant about the exchange rate that you are getting when converting one currency to another — it's virtually guaranteed that the bank doing the currency exchange has baked a fee into the exchange rate that they offer you.
- Services such as Wise (formerly Transferwise) can help you to figure out whether you are getting a fair exchange rate from your bank, as well as potentially providing a more cost-effective way to transfer money between countries (as long as you are willing to trust the additional intermediary).
- Your home government may require you to jump through extra hoops. For example, US citizens are required to file additional forms at tax time if they hold foreign bank accounts with a combined balance over a certain amount.
- If you open an account in a country that doesn't speak your language, it may be really difficult to communicate with customer support to resolve any problems that may arise.
- The currency that your foreign account is denominated in may depreciate relative to your home currency.
- The funds in your foreign account may be protected from being frozen/confiscated by your home country's government... but that doesn't make them safe from the foreign country's government.
Tax Evasion and Money Laundering
OK, let's address elephant in the room now.
In general, simply transferring funds to a foreign jurisdiction will do nothing to help you evade taxes or hide evidence of a crime. Pretty much any method you can think of to transfer money is easily traceable, and any method that is difficult to trace is either illegal or heavily-regulated, with stiff penalties if you get caught.
There are a few jurisdictions that have very strict banking privacy laws (the Philippines, for example). If you can somehow get the money into a bank account in one of these countries, you might be OK... at least, until that country's government decides (or is pressured) to change its banking privacy laws.
But, what would you actually do with that money? Unless you want to go live in that country, you're going to have to transfer the funds out to spend them, and now you're right back on the radar — except now it's even worse, because the fact that the funds come from a suspicious jurisdiction will automatically cause your transfer to get flagged for investigation!
This is where money laundering comes into play. There are lots of ways to go about this (exceptionally illegal) activity, many of which do not involve banks at all (at least, not directly). How money laundering works is outside the scope of this question, but in case you are curious, here are a couple of articles about the "dark side" of finance:
In short, if you want to break the law, opening a foreign bank account isn't going to help much. In fact, the real crime is that offshore banking has such a criminal reputation in the first place!
Doing It Right: Tax Avoidance
That said, it is possible to create legal distance between yourself and your money by using a corporate structure, and there are legitimate reasons why you might want to do this. Depending on which jurisdiction(s) you are a tax resident of, you can use this method to:
- Protect your savings from frivolous litigation.
- Legally reduce/defer your income taxes.
- Take control of your tax-deferred retirement account.
- And more.
Exactly how to do this is outside the scope of this question, but it's worth thinking about, especially if you have an interest in geopolitically diversifying your financial assets.
If you're interested in learning more, I came across a pretty comprehensive article about Offshore Basics that covers how and why to set up offshore legal structures.
(and yes, that makes now 4 links from the same site in one post! I promise it's just a coincidence; see disclaimer below)
I am a US citizen with bank accounts in several countries (but not Switzerland; there are far better options out there right now).
I have no affiliation with the website linked in this answer; while I was doing research for this answer, I found some really good supporting content, and it all just happened to be from the same source.