Offshore banking provides great degree of privacy regarding financial transactions, name of the depositor and other such information. The legal restrictions imposed on financial transactions done at an offshore bank are negligible. Also, there are no taxes or very low federal taxes to be paid. Offshore banks protect accounts with them from local, financial, and political instability. This helps local residents too in case there is a political or financial crisis when assets are frozen.

Offshore banks provide a higher rate of interest than a resident local bank. As their operating costs are less as compared to resident banks, they are in a position to provide higher rate of interest to its account holders. These banks need not pay tax or interest to the local governments and this reduces their overhead cost giving them greater flexibility in offering higher interest rates.

Offshore banking helps you in protecting your assets. Your account is shielded from any search by the law enforcement authorities. Your account gets legal protection automatically. For those countries and island nations that are land-locked and do not have any growth opportunity, offshore banking can provide them with one. Such countries usually survive on tourism to a great extent. Offshore banking provides them with another source of income. They allow offshore banking and hence their economy runs on funds provided by depositors from other countries.

Offshore banks are connected to offshore companies, foundations and trusts. This provides individualized tax advantages. This also protects depositor's money and creates a new avenue for investment. This banking system encourages governments of many countries to relax strict banking laws in their respective countries and create a competitive atmosphere that can further help in updating banking laws and removing old banking laws so as to increase investment in their countries.

Though offshore banking has many advantages, in most of the cases, it is associated with parallel economy and black money. The impression about such a banking system in the minds of general public is negative. These banks can be a source for illegal transactions and can be used by terrorists and drug runners for their nefarious activities. As these banks provide anonymity, tasks of these desperate groups become easy.

Whatever advantages offshore banking has in terms of high interest rates is mostly availed by people with higher income as the cost of establishing such accounts is high.

Thus, it can be concluded that offshore banking is a source of income for a country or island nation that is landlocked or underdeveloped. Though such banking channels provide high interest rates, the image it has is negative and a lot of vigilance is required in this regards.