Offshore banking is used widely by large institutions and even for personal accounts. People use this form of banking for a variety of reasons. Some are legitimate and others are not. Offshore banking is usually done with large amounts of funds. For this reason it can be used for illegal activities as well as legitimate business.

Traditionally offshore banking was done in the Channel Islands and the word "offshore" was initially was taken from Britain. The term was so called because the Channel Islands were offshore from Britain. Even in the modern times, we will find offshore banks, mainly in island regions. However, the renowned Bank of Switzerland, Luxembourg and Andorra are some exceptions to this theory.

Over the years, offshore banking is referred to as the "underground economy" as it is notorious for unsure banking practices. The first thing that comes to our mind, when we think of offshore banking is organized crime, tax evaders, and money laundering. However, we cannot generalize offshore banking for illegitimate and criminal activities.

Offshore accounts can often help those who are involved in trading foreign currencies, including Forex trading. Sometimes it is easier to have a bank account in the country that you are trading currencies for.

There are several advantages to using offshore banking:

Political stability: Offshore banking permits traders to have personal bank accounts in every country which offers political and economic stability. Being a resident of a country put you at a risk of loosing your assets, while offshore accounts promises complete safety of your assets without the risk of your money getting frozen or completely disappearing.

Higher interest rates: Sometimes it can happen that offshore banking can provide you with a higher interest. If you have a large amount of money this can prove very profitable.

Helping under developed countries: Offshore banking assists under developed countries and redistributes the world’s wealth. This system helps under developed countries to improve their economy, which in turn improves the overall world economy.

A few services in an offshore bank account may work better for you than those in your own country. Offshore banking also allows you to take advantage of other services like offshore companies and trusts.

However, with all these glowing attributes, offshore banking is not devoid of deficiencies either.

Illegal transactions: Many times offshore banking is related to illegal or illegitimate and criminal activities like organized crime, tax evasion, and money laundering. It has many facilities where terrorists can invest in the bank and deposit their funds. It is the best place for people to hide their huge income, so that they get tax exemptions. Due to these problems there has been control over offshore banking by some governments, especially after the attack on the World Trade Center, on the 11 of September, 2001.

The economy of some developing countries can be harmed when large amounts of money (termed as hot money) are transferred quickly from one country to another. This can have a detrimental effect on world economy.

Thus it is important for you to be very careful and wise while investing your money in an offshore bank. You should always keep a tab on the latest rules, regulations and clauses of the government in the country you wish to invest in. Its best advised to play safe, as your money is at stake.