Offshore Bank Accounts
Offshore bank accounts have always had rather a chequered reputation. Some people see them as the dark, dishonest domain of the tax dodger. While others view them as a status symbol, a sure sign that “one has arrived”. This isn’t really the case anymore. Plus, you don’t have to have enough money to have made the panama papers list to open one. There are many very affordable offshore accounts.
So, if you are an expat or an overseas resident do you need an offshore account? Should you just go and dump your old onshore accounts tout suite?
- Convenience; – In general offshore banks deal with account holders who live outside of their local vicinity. This means that the way that they operate is ideal for expatriates,. Larger transfer limits for online transactions and efficient telephone banking services will help you sort most of your needs. Domestic accounts can cause expats to struggle and experience some frustrating phonecalls far more often. This depends on location, though usually there are modest transfer limits. Above these levels you need to visit a branch or post a written request.
- Tax Efficiency; – You won’t pay tax on your offshore account if you aren’t resident in the same jurisdiction as your bank. This applies to any interest generated on the account. Right now, this isn’t such a big deal because interest rates are so low. Even sizable deposits aren’t getting much above 1% pa in any of the major currencies. You will have to tie up your money for a couple of years to do any better. This will change at some point though for the moment every little helps.
- Currency; – When you move overseas you may find that you are dealing in a few different currencies. This will depend where you live, the base currency of your package and financial commitments back home. Having an account in the middle that allows you to switch currency and minimize transfer costs can bring real savings. It will also give you more control over your personal finances. If you’re working in a country with a volatile currency, it’s good to make periodical transfers into a major currency. Building savings in an unstable currency can wipe you out even though you may get better interst rates.
- Paperwork; – Setting up an offshore account isn’t that easy with lengthy applications, lots of questions. All supporting documentation must be certified by an embassy, lawyer or notary. The fact you can’t pop down to the branch, sit down with someone and sort it is an issue. This can cause difficulties and result in a lot of toing and froing. In addition every few years some banks send lengthy surveys to complete, failing to do so can mwan account closure. Apparantley it is to meetanti-money laundering requirements. Though if you have enough money most banks are happy to launder it for you. It is more likely for weeding out unprofitable clients and is a pain. Having said this some banks are better than others. The only way to find out is to ask people of their experiences.
- Minimum Balances; – Most offshore accounts require you to start with and maintain a minimum balance. Otherwise monthly account fees may apply or at worst account closure. There can also be a minimum balance that the account cannot go below, though not in all cases.
- Transfer Costs; – Transfer costs via CHAPS or Swift can range between £20-£60. So if you’re making a lot of monthly transfers, costs pile up and you may wish to find acheaper alternatives. If you need to make sterling transfers, then doing your research before you set up an account is important. This is because some offshore banks don’t provide the cheaper BACS transfer and will only make them via CHAPS. If you have got payments to make back in the UK, then direct debits can be set up from Isle of Man and Channel Island accounts. Debit card can also prove a more cost effective solution than standing orders.
I used to be an advocate of closing your old onshore accounts and using offshore accounts along with a local bank. Having repatriated back to the UK I now know that I was wrong! If you intend to return to your home country then keep an account open there. There are a number of reasons why this helps. The biggest being that when you get back at least you have a credit rating as starting from scratch can prove to be pretty difficult.