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What is an Offshore Savings Account?

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Many people think that offshore savings accounts are just for the super rich who want to limit their tax liabilities. However, this isn’t the case and while some accounts have minimum deposits, they can be opened by any UK resident. How exactly do they operate and how can they benefit a UK saver?

With an offshore account your funds are kept outside of the UK, usually in the Channel Islands or the Isle of Man. They’re operated by a range of providers, many of which are part of a UK high street bank. Any UK resident can open an account, regardless of where they live and work, but many will have a minimum deposit of between £5,000 and £10,000.

There are a range of different types of offshore accounts, depending on when you want your interest to be paid and how you intend to access the account. As with UK based savings accounts, you can choose from a fixed or variable interest rate, as well as notice and easy access accounts. You can choose to have your interest paid annually or monthly, which is useful if you want an additional monthly income from your interest. When you’re researching accounts you need to choose the access method that suits you, whether that’s in branch, by phone, online and through the post.

Advantages of Offshore Savings Accounts

One of the benefits of these accounts is that they’re available in Euros and US Dollars, as well as Sterling. This can offer advantages to those who are paid in a different currency or who travel substantially for business. It enables you to easily withdraw money and carry out transactions across the world. However, there’s also the risk that you could lose out if you need to convert money back to Sterling and the exchange rate isn’t favourable.

It’s often thought that offshore accounts aren’t liable for UK tax, but this isn’t the case and HMRC will impose hefty fines on any individual that uses them for tax evasion. However, there are still significant tax advantages of keeping your money outside of the UK, especially if you have considerable savings.

Tax free savings money

Unlike UK accounts, tax isn’t taken straight off the interest you receive, but you must declare it on your self assessment forms. As there will be a delay between receiving the interest payments and having to pay tax on it you could increase the income you receive compared with a UK account. There’s also the option with some offshore accounts to defer your interest payments, which might be beneficial for tax purposes. These usually pay the interest when the account is closed, but there are other options available.

Risks of Offshore Banking

Any money held in an offshore account is not part of the UK Financial Services Compensation Scheme (FSCS). This could mean that your money is at risk if the financial institution was to collapse, as happened with many of the savers with the Icelandic banks. Some countries may have another form of protection, but you would need to check this before opening the account.

Some accounts charge high fees for carrying out transactions. This would make them inefficient for those savers with smaller deposits, as any advantages would be outweighed by the costs involved.

As with all financial products you need to research the market beforehand and choose a product that suits your requirements. Consider how much you want to save, when you’ll require access to it and what the financial benefits will be.

 

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About Catherine Stern

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About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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