Until a recently, the typical offshore investor did not have access to the payment convenience and flexibility associated with a credit card'at least not from the standpoint of accessing and spending the money he or she had safely placed offshore. Consider the predicament of yesterday's offshore investors seeking to access smaller amounts of money residing in their offshore bank accounts say, under $10,000. If those individuals wanted to use offshore funds to make a purchase while living in North America or traveling abroad, they would have to personally withdraw funds from their offshore bank or have money wired to bank accounts where they lived.

Offshore credit cards have greatly facilitated the use of money held in offshore accounts. Offshore institution-branded Visa and MasterCard credit cards have ushered in a whole new realm of payment flexibility and convenience for today's offshore investor, but they are products that still require careful consideration and research. How do they work and what do they cost? How secure and private are they? What are the possible pitfalls and ramifications associated with using these cards?

How they work

Offshore credit cards share the same characteristics as ones in your own Country. They all carry a Visa or MasterCard label, are accepted at more than 14 million locations worldwide and provide cash advances at several hundred thousand automatic teller machines and banking institutions around the world.

Despite their similarities, a significant difference exists between domestic and offshore credit cards. The vast majority of reputable offshore credit cards are "secured" cards. They require offshore investors to provide a security deposit with their application for the card and therefore do not require offshore investors to go through credit checks.

To increase a credit line, investors simply need to increase the amount of their security deposit by the appropriate factor, either by sending a draft or by wiring funds to the card company. The requirement for a security deposit contrasts with a domestic credit card and effectively renders these products not credit cards per se. They are rather hybrid cards that access a line of credit that is fully secured with one's own money. Most of the card companies do not refer to their products as "credit cards" but either as "offshore cards" that provide the "benefits and acceptance of a Visa or MasterCard" or "offshore cards" that provide investors with access to "offshore collateral investment accounts."

The most important consideration of any investor securing an offshore card, line of credit or other offshore product is cost. Beyond the requirement to submit a security deposit with your application, you may be charged an initial administration fee to cover the efforts to arrange the card and facilitate the trust deposit. These charges can range from US$100 to more than US$3,000.

Normal annual credit card fees apply and will, in most cases, be similar to those charged domestically, however excessive annual fees of more than US$500 are charged by some.

Perhaps the biggest cost attached to offshore cards is the opportunity cost incurred as a result of the large security deposit. Offshore card companies, being licensed trust companies and banks, make their money in many different ways, including service fees, transaction charges and incentive fees.

Additional opportunity costs may be incurred in instances where an investor cancels the offshore card. Companies often hold onto security deposits for about six months following a notice of cancellation. This gives the company time to properly liquidate its positions with the securities purchased. It also allows the company to ensure that all transactions made on the card have cleared. Convenience, indeed, comes at a cost.

Looking through internet sites you will learn how for as little as a US$250 application fee, and with virtually no credit information supplied, you can receive an unsecured credit card with a US$5,000 to US$10,000 credit line. Some promoters of these products also claim they can secure a card for you in a different name than your own and can further support your spending with the provision of additional pieces of fake identification.

Offshore schemes boast low application fees, complete anonymity and the ability for participants to earn hundreds of dollars in referral fees. Promoters of unsecured credit cards are, by and large, an unsavory lot and could never meet the stringent requirements of Visa or MasterCard.

Most unsecured offshore credit schemes follow a similar pattern: you send in your application fee, you never receive your card and you kiss your money goodbye. Yes they are a scam to get your initial membership or sign-up fee.

Some schemers may even take the information you provide in your application and apply for cards in Canada and the US in your own name, forcing you to not only prove to the credit card companies that you didn't defraud them, but also to spend years clearing your credit rating.

To be sure, reputable offshore institutions can offer unsecured credit cards, but do so in very rare circumstances and only to extremely well-known investors with substantial assets.

For the most part, unsecured offshore credit cards are not attractive to offshore financial institutions due to the multi-jurisdictional nature of offshore investing and the privacy protections provided to investors, along with their general reticence to provide any credit details and other information needed to assess credit worthiness. Simply put, prudent offshore investors steer clear of unsecured offshore credit card pitches and resign themselves to entrusting their security deposits to legitimate offshore card issuers in exchange for an effective and real offshore card.

Offshore cards have ushered in a new world of transactional convenience and simplicity. Irrespective of the many benefits they provide, however, it is important to conduct careful research to distinguish good programs from bad, as well as to ensure that your security or account deposit does not fall victim to unscrupulous operators who simply use the power of the global MasterCard or Visa brand to lull you into a false sense of security. Like the domestic market, the market for credit and debit cards is highly competitive, so it pays to shop around.