From J.C.: “Does offshore banking provide the financial privacy and competitive return it’s represented as doing? I am not interested in anything illegal or banking with drug lords, just like to have more privacy in my financial dealings without sacrificing returns. What are the advantages and disadvantages of taking my money abroad?”
I’m no expert in this, but the first disadvantage is that you have to check a box on your tax form saying you have foreign accounts. So there goes the privacy, or at least some of it. Second, you don’t have the FDIC standing behind your deposits. Third, there is not likely to be a meaningfully better return from a German or Swiss or Bahamian bank than from a U.S. bank unless you’re taking more risk. Fourth, the transaction costs for doing this, and the effort, may overshadow any advantages.
That said, some people do want their assets abroad, sometimes outright, sometimes in trusts, to escape creditors or lawsuits or whatever. But the idea’s never grabbed me.
See also: Offshore Funds.