Offshore Savings Accounts: Are they Worth Considering?

There has always been a bit of a stigma about offshore bank accounts – thanks to a series of tax-avoidance scandals, they are often viewed as money laundering havens for the uber-rich.

But these misconceptions could be keeping many people from taking advantage of the great rates and benefits that offshore saving can offer.

Offshore savings accounts are available to anyone, as long as you can meet the minimum deposit criteria.

In fact, if you have savings of £25,000 or above, an offshore bank account could offer some of best savings rates on the market, along with multi-currency benefits and a range of tax-free benefits. For pension savers and soon-to-be pensioners, an offshore bank account is well worth considering.

So, we’ve put together a list of frequently asked questions and answers to help you decide if offshore banking is right for you.

OFFSHORE BANKING – FAQS

1. What is an offshore bank account?

An offshore bank account is a bank account which is being managed outside of the account-holder’s country of residence. For instance, if a UK resident (and taxpayer) opened a bank account in Spain, it would technically be an ‘offshore’ account.

Some offshore jurisdictions are more popular than others, thanks to their heightened privacy laws (e.g. Switzerland) and lower taxation (e.g. Cayman Islands), making them particularly useful for ultra-wealthy individuals who wish to shield their money or their identity.

However, the term also applies to some islands off the British coast which have been granted special financial status. The Isle of Man, Guernsey, Jersey and Gibraltar are among the most popular offshore jurisdictions in the UK, and they are used widely by banking bodies and individuals across the country.

2. Who can open an offshore bank account?

Offshore accounts were originally designed to allow expatriates and frequent travellers to store multiple currencies safely in one jurisdiction with one set of rules and laws. So, in theory, anyone can open an offshore bank account.

However, the vast majority of these accounts are subject to a minimum deposit value – usually £25,000. In the most prestigious offshore jurisdictions (e.g. Switzerland or Bermuda), the minimum deposit can be as high as £100,000.

This has the effect of limiting the number of people who can afford to open and maintain offshore bank accounts.

3. Are offshore bank accounts safe?

In many ways, offshore bank accounts are just as safe as onshore bank accounts. Every major UK-based bank offers an offshore service to its customers, and the offshore accounts are structured in a similar way to regular bank accounts. But there can be huge differences in the way that offshore accounts are regulated.

In mainland UK, all banks and building societies are subject to strictt regulation by the Financial Conduct Authority (FCA), which ensures – among other things – that the market stays competitive, that savers are given a fair deal by their banks, and that banks are able to pay back deposits when needed.

Each offshore jurisdiction has its own version of the FCA, but the standard of the regulations will differ from place to place. If in doubt, research your offshore jurisdiction of choice and do not send your money there unless you are confident that the financial regulations are sufficiently strong.

4. Is an offshore bank account Illegal?

No. Offshore bank accounts are completely legal.

While it is true that some people use offshore accounts for illegal activities, the act of owning an offshore account is not in itself illegal.

5. Why is it good to have a Swiss bank account?

Switzerland is globally renowned for its banking sector, and it is arguably the most famous offshore jurisdiction in the world.

There are a few reasons for this.

Firstly, Switzerland is home to some of the largest banks in the world, including private banks and family offices. Two of the largest banks in the world – UBS and Credit Suisse – are both based in Switzerland, and according to the Swiss Bankers Association, upwards of $6.5trn (£4.88trn) was being held in Swiss bank accounts in 2015[1].

The current figure is not yet known, thanks to Switzerland’s other big draw – its secrecy.

Swiss banks are banned by law from revealing the names of any of their customers. Furthermore, tax evasion is not recognised as a crime in Switzerland, making it an ideal place to hide large amounts money from HMRC without the risk of being caught.

Swiss banks also operate a famous ‘no questions asked’ policy – anyone can open an account at very short notice, and withdrawals can be made quickly and discreetly.

Finally, the Swiss Depositor Protection Agreement ensures that every account holder will be able to recover all of their money if the bank goes into administration, making Switzerland one of the most depositor-friendly countries in the world.

6. Are better rates offered on offshore accounts?

Yes and no. The interest rates offered by offshore accounts will vary greatly depending on the jurisdiction.

Within the UK, US and EU, interest rates are heavily influenced by the central banks, and these rates have been consistently low ever since the global financial crisis of 2007/2008.

This has resulted in historically low savings rates across the Western world, encouraging many frustrated savers to look abroad for better rates. However, in order to access these higher savings rates, you may have to accept a higher level of risk or higher fees, which can cancel out any potential benefits.

Among the most popular offshore UK jurisdictions (Guernsey, Jersey, Isle of Man and Gibraltar), interest rates on current and savings accounts are not that much higher than they are on shore. But savers can supplement these rates by taking advantage of extra features such as fee-free currency transfers, and lower taxation.

7. Do you pay tax on offshore savings?

Yes. All offshore savings must be declared to HMRC, regardless of where they are being held, or how much money is being saved offshore.

If you fail to declare your offshore savings, you could be accused of tax evasion – a crime which can result in a hefty fine and even jail time[2]. However, in most cases, offshore savings will be charged at a much lower rate than onshore savings, particularly if you stagger your withdrawals.

Your overall tax liability will vary depending on how much money has been saved offshore, how many withdrawals have been made, and what your offshore savings are being used for. If you are in any doubt about your tax status, contact an accountant ASAP.

Even tougher penalties will be introduced on 30 September 2018, so if you are holding offshore savings that have not been registered with HMRC, you can minimise your punishment by contacting the Worldwide Disclosure Facility[3].

8. Are offshore savings protected by the FSCS?

No. The Financial Services Compensation Scheme (or FSCS) only protects money that is being held in an onshore UK bank account, not offshore accounts.

However, each offshore jurisdiction will have its own financial laws and regulations which are designed to protect savers in a similar way to the FSCS. For instance, banks registered with the Guernsey Financial Services Commission are covered by the Guernsey Banking Deposit Compensation Scheme, which protects the first £50,000 per person, per bank. The Isle of Man has a similar scheme, which also protects deposits of up to £50,000, and the Jersey Depositor’s Compensation Scheme also protects up to £50,000.

Before opening an offshore bank account, it is vital that you conduct your own due diligence so that you can make an informed decision about the level of risk you are prepared to take on. Some offshore jurisdictions are more prone to geo-political risk than others, and this should be taken into consideration before any money is transferred.

9. How do you open an offshore savings account?

It is surprisingly easy to open an offshore savings account. Simply request an application form from your bank, fill it in, and send it back to them along with the required ID.

Once your bank approves your request, you will be able to open an offshore account immediately by lodging your deposit.

10. Where can you find a good offshore savings provider?

Every major UK-based bank can offer offshore banking services to its customers. Additionally, UK citizens may choose to bank with a bank or building society that is local to the jurisdiction.

There is a huge range of choice when it comes to offshore savings providers. We’ve listed a few of the most popular names here:

OFFSHORE BANK ACCOUNTS
Name of account Offshore jurisdiction(s) Best savings rate Key terms and conditions
Barclays International Bank Account (100 day notice)[4] Jersey and Isle of Man 0.80 per cent on GBP deposits of more than £500,000. This interest rates rises to 2.05 per cent if you make your deposits in USD. There are no account fees but if your balance falls below £25,000 at any point, you will be charged a monthly admin fee of £20.
Citibank – Citigold Wealth Management[5] Jersey 0 per cent, but users get eight free international transfers per month free of charge. Minimum deposit of £75,000. If your balance falls below this, a monthly admin fee of £25 applies.
Lloyds Offshore Premier International Account[6] Isle of Man and Gibraltar. 0 per cent, but all currency transfers and multi-currency withdrawals are free of charge. Minimum deposit of £100,000.

If your balance falls below £2,500, a monthly admin fee of £20 applies.

Santander Private Banking – Gold Bank Account[7] Jersey 0.75 per cent on balances up to £999,999. 0.85 per cent on balances of £1m or over. No international cash withdrawal fees, and no monthly fees.

 

[1] https://www.swissinfo.ch/eng/business/tax-justice-network_switzerland-ranked–global-capital-of-bank-secrecy-/43864986

[2] https://www.gov.uk/guidance/requirement-to-correct-tax-due-on-offshore-assets

[3] https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure

[4] https://wealth.barclays.com/content/dam/bwpublic/global/documents/pbos-common/rates/international-banking-rates/ib-savings-rates-islands-IBIM3705.pdf

[5] https://www.citibank.co.uk/personal/citigold-current-accounts.do

[6] https://international.lloydsbank.com/products-and-services/current-accounts/premier-international-account/

[7] https://www.santanderinternational.co.uk/banking/bank-accounts/gold-bank-accounts

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.