In the first place, an offshore bank is a bank that is located outside the country of residence of the investor or depositor, probably in a low tax country, which provides greater financial and legal advantages.

The term ‘offshore banking’ originated from the channels Island, which is offshore from the United Kingdom. No wonder most traditional offshore banks are located in countries that are island nations, even till this day. But, it is also used figuratively to refer to offshore banks that are located in landlocked countries, such as Luxembourg and Andorra, including the popular Swiss banks.
 
More so, this type of banking, in the recent times has been associated with such deviant practices as tax evasion and money laundering. But legally speaking, offshore banking does not prevent assets from being subject to personal income tax on interest, though this practice varies from country to country. In the U.S., income taxes are made to be declared under the punishment of perjury both for local banks and the ones situated abroad.

However, banks may decide otherwise not to report such investors to their country of origin, and they are not obligated to do so based on the mutual oath of secrecy that binds them with their customers. But, this protection, which is guaranteed by the bank secrecy does not make the non-declaration of the income tax-payer or the evasion of tax on the income legal.

Interestingly, this system of banking holds out a lot more juicy advantages to those who engage in them. It provides access to the bank in more politically and economically stable countries. In this case therefore, people who live in a more turmoil and war torn countries, who fear the termination of their resources, can take solace by banking in the secured countries.

Again, offshore banks are known to operate on a relatively low cost basis with higher interest rates, which is often better than the legal rate in the home country due to lesser expenses and the absence of government interference. Those who promote offshore banking see the government regulation as a form of tax on home banks, which reduces interest rates on deposits. And also, interest is often paid by offshore banks without tax being subtracted.
This is also one of the few investments along with tourism that countries in the remote regions can engage in without much stress. This is because it can help developing countries to source revenues and enhance growth in their economies, thereby helping to reallocate world economics from the developed to the developing nations.

Furthermore, some offshore banks offer banking packages that may not be permitted on the home front, such as anonymous bank accounts, higher or lower rate loans based on risk and business opportunities not available in other places.

Like most of the home front or traditional banks, offshore banks offer such service as deposit taking, wire, and electronic funds transfers, investment management and investment custody, foreign exchange, trustee services, corporate administration, and others.