Offshore banking isn't just the preserve of the well off. But is it worth it?
With interest rates so pitiful on UK savings accounts is it possible you could get a better rate if you moved your savings offshore?
Hear the words offshore banking and most of us think of the super-rich sheltering their money on tropical islands to evade the taxman. In fact, offshore banking is available to anyone and many well-known names have international arms based just off our shores in the Channel Islands or the Isle of Man.
The rules
Anyone can open a savings account offshore. You just need to be able to provide the usual personal details and ID. However, you may need to have a large amount of money at your disposal as many offshore accounts have pretty high opening balances of £5,000 to £10,000. But that isn’t always the case, with some accounts only requiring £1.
With an offshore account your interest will be paid to you gross. This differs from UK banks that automatically deduct 20% Income Tax, unless you notify them that you aren’t liable for it. With offshore accounts you will need to declare the income on your tax return. Because Income Tax isn’t immediately deducted this may mean you can enjoy bigger returns than you would on a UK bank account.
Many offshore banks also allow you to deposit cash in different currencies. This can be really useful if you spend a lot of time abroad and want to be able to flick between currencies without dealing with constant foreign exchange charges.
Beat naff savings accounts with a killer current account
The banks
Banking offshore doesn’t have to mean handing your money over to a bank you have never heard of. Many high street banks including Nationwide, Santander, Skipton Building Society and numerous others have offshore divisions.
[SPOTLIGHT]However, the rules regarding the safety of your cash are different. Deposit your money with an offshore bank and you are not covered by the Financial Services Compensation Scheme (FSCS). The FSCS guarantees that if a UK bank goes bust you’ll get back the first £85,000 you have deposited there. In both Jersey and Guernsey only the first £50,000 is protected under their own deposit schemes.
Beat naff savings accounts with a killer current account
The accounts
While there are tax benefits to moving your savings offshore, at present it isn’t really worth bothering for most people. That’s because there aren’t impressive interest rates on offer. Most of the offshore savings accounts in Jersey and Guernsey offer similar interest rates to the ones you can find here. For example, Skipton International is offering a rate of 1.75% on its 150-day notice account. But Charter Savings Bank is a UK bank offering 1.85% on its 120 day notice account.
It’s a similar story across the spectrum of savings accounts. Nationwide’s offshore three-year bond is one of the best fixed rate accounts with a rate of 2.25% but you can get 2.7% from a UK bank. Nationwide’s offshore instant access account pays 1.25%, but you could get 1.41% with Virgin’s UK account. Read The best fixed rate savings accounts.
The returns on ISAs may be meagre but they trounce what the Channel Island banks are offering. You can get a tax-free rate of 1.55% instant access with the West Brom, compared to a post-tax rate of 1% offshore with Nationwide. Read The best Cash ISAs for the 2015/16 tax year.
For the majority of us offshore banking isn’t worth bothering with at the moment. You simply won’t beat the returns offered by UK banks.
You are better off making the most of the tax-efficient savings options available to you within the country. Use up your £15,240 ISA allowance, increase your pension contributions and make the most of a spouse or partner’s Income Tax bands if they earn less than you. For more read Save up to £212 thanks to marriage allowance.
Offshore banking may sound glamorous and lucrative, but the reality is it is the same banks offering you the same meagre interest rates, just from a slightly sunnier office.
Beat naff savings accounts with a killer current account
More on savings and ISAs:
The best Cash ISAs for the 2015/16 tax year