Keep Your Offshore Savings Safe

Hannah Beecham  Monday, March 1 2010 16.33

Overcoming Offshore Anxiety

Some plain talking for the nervous offshore saver.

Despite there being no further collapses since the almighty crashes of the Icelandic banks, fears persist in many a poor offshore saver's breast that their hard-earned nest-eggs could vanish overnight. Many expats are wondering whether they'd be better off sticking their money back into a UK-based deposit account where regulation is arguably tighter and compensation – in the event of problems – more reliable.

The practicalities of offshore

However, the reason why it still makes sense for expats to hold offshore accounts is one of pure practicality. In theory, a UK bank can arrange payment of interest to a non-UK resident without the usual tax deducted at source. However, most UK banks won’t do so and point to their offshore subsidiaries which are set up to do just - pay gross interest on savings' balances. While it's true that an expat taking their savings to the offshore subsidiary means he/she can keep the relationship with the existing bank and still derive some comfort from dealing with a part of a UK group, the fact remains that the expat saver actually doesn't have an account in the UK, so the regulatory oversight and compensation offers are just not the same.

Sytems that can't be shared

This reluctance on the banks' part to offer a gross interest paying service looks even more odd, when you consider that these banks have the infrastructure in place as they all administer a scheme for UK residents whose income is not high enough to attract income tax and who can, therefore, apply to have their deposit interest paid gross. Apart from the administrative considerations, there seems to be no reason why a similar scheme could not be run for expatriates who want their deposits in the UK. However, it's not in place, and, as far as know, nor being considered as we write.

Employ your own common sense

The key to protecting your deposits is to use your common sense. Don’t be dazzled by interest rates that are unrealistically high. Don’t be fooled by proper-sounding banks that you have never heard of before. Do settle for a lower rate to ensure security, but look around and be full satisfied that you know exactly who you're banking with. Above all, keep your balances with all financial institutions below the maximum compensation ceiling offered by the offshore centre's regulators.