The most common type of account is simply a Named Account. The correct name and address of the depositor is filled in on a bank signature card. As in a U.S. account, the signature card allows bank employees to verify the signature on a withdrawal. In most cases, the financial institution will require identification in the form of a passport, birth certificate, or sometimes a driver’s license. Often a letter of reference from the customer’s current bank will be necessary. The account application will ask whether the customer wants bank statements held at the institution for pickup or mailed to an address that the customer provides. Communications from the bank may be mailed in plain envelopes, with a return address of a bank manager or employee.
The account application will have the customer designate the signatory on the account. There are several alternatives. The customer can be sole signatory or joint signatory with a spouse or some other person. It can be specified that either signatory can withdraw funds or that the signature of both parties is necessary.
The depositor also specifies the manner for holding the funds and the choice of currency. For example, a deposit in a Bahamian bank can usually be held in U.S. dollars, Swiss francs, or other major currencies. Currencies other than the dollar may pay higher or lower interest rates depending upon the relative stability of that currency. At this moment, interest rates on the Hong Kong dollar are nearly 20 percent per year. However, an investor in this currency runs the risk that the Hong Kong dollar will decline in value and a substantial portion of the deposit may be lost. Diversification of funds among the major currencies is a sound practice, but speculating in order to achieve what appear to be superior returns can be hazardous.
Amounts on deposit, in whichever currency, can be held in a time deposit, which earns interest based on the term of the deposit. The amount of interest is based upon the currency in which the funds are held and the term of the deposit. Dollar accounts will earn interest at the going rate for dollar deposits-meaning the same basic rate as that available in the U.S. If thirty-day certificates of deposit pay 5 percent in the U.S., you will earn approximately that amount in the offshore account.
The variation in the interest rate on dollar denominated accounts is no greater offshore than it is in the U.S. We live in an age where trillions of dollars are moved around the world electronically and instantaneously. If a bank in Bermuda is paying above market rates for dollars (in the form of interest), then that bank will be flooded with deposits quickly. This ability to arbitrage interest rates in the international markets keeps these rates at a uniform level throughout the world.