Guide to Essential Money Tools

Savings Tools

Selecting the right offshore account

A savings account is one of the essential financial tools for any expat organising money management during time spent overseas. But before snapping up the first offshore savings accounts that comes to your attention, it pays to research the full range of accounts on offer in this market and make comparisons.

First, consider how quickly you may need to withdraw funds from your savings account. Term accounts require notice periods from a few days to six months before access to funds can be made. Otherwise a penalty must be paid, usually in the form of a loss of interest.

Some expats are drawn to a selected number of offshore accounts available on notice terms that permit a specified number of immediate withdrawals per year without imposing penalties.

An important factor linked to accessibility concerns the additional features associated with an account. For example, a number of major banks with tailored services for expatriate customers offer dedicated online banking services. Such facilities enable savers to check balances, order statements and make transfers between accounts.

All expats comparing accounts should be aware that some savings accounts advertise a high rate of interest which closer inspection reveals will apply only for a short period of time. It is always important to read the small print and check out how long the account has been on the market as well as its consistent track record in maintaining consistently good rates. Some savings accounts also include additional enhancements such as the provision of a debit card. Certain banks offer their savings account customers a related current account with features such as a personalised chequebook and/or a debit card.
Specialist offshore banking groups understand the lifestyles of those living and working abroad. You may be dividing your time between different countries, retiring abroad, temporarily moving to develop your career overseas or working on contract, perhaps for a fixed period, but retaining your main residence at home. Whatever the circumstances, it is possible that a sterling account may not always be the most appropriate. When comparing savings accounts, check out the savings schemes available in a choice of currencies. Your preference may be for the US dollar or euro, for example, particularly if your salary is paid in one of these currencies.

Be sure that the savings accounts you are comparing offer similar features. Take into account the notice periods, and then make a judgement about rates offered. It’s likely you will see two rates advertised, one labelled ‘gross rate’ and another with the acronym AER (annual effective rate). Offshore banks tend to pay interest gross, which means without any deduction of tax. However, all savers should note that jurisdictions such as Jersey, Guernsey and the Isle of Man are signed up to the European Union Savings Tax Directive (EUSTD). You will be affected by this if you are a resident for tax purposes in an EU Member State. In this case, a withholding tax is payable on the interest earned on your savings. There is, however, an alternative which involves exchanging information with your home tax authority. Your financial services provider can explain the details to you.

AER is the annual effective rate and is a clearer reflection of the amount of interest you will earn annually. Some savings accounts pay interest monthly, others quarterly or twice a year. The AER is a calculation based on the interest payment compounded during the course of a full twelve months. The AER is generally a more useful indicator of the amount you will earn in interest each year than the gross rate.

Ultimately, you should maintain a savings account with a financial services organisation that demonstrates an understanding of your particular circumstances. Such an organisation will concentrate on delivering a high quality service through its range of products and services which will be tailored to the expatriate marketplace and based in a reputable and highly regarded offshore jurisdiction such as the familiar British Crown dependencies of the Channel Islands and the Isle of Man. Choice is important in financial services particularly for expatriates and it is worth comparing the offerings of the various providers closely before choosing where to keep your savings.