Opening an Offshore Account for Expats

There is a wide number of offshore bank accounts to choose from. But what kind of account do you need and what will it cost you?

Are offshore bank accounts for me?

Whether or not they are for you will depend very much on your need as an expat to have all or part of your financial affairs in one convenient place. Although technological advances mean that local banks are now more geared up for customers who have perhaps more complicated banking requirments than the average retail customer, some expats prefer the convenience of dealing with a bank that specialises in providing services aimed at expats, which is what offshore banking is supposed to specialise in. However, these banks have over recent years started to alter their offerings with many now catering specifically for the wealthier customer, which means some expats simply cannot afford the luxury of having an offshore bank account. This is partly due to the rising costs of keeping an offshore banking operation open in conjunction with the recent global recession. By shopping around, however, expats will still find banks catering for this section of the market who do not require wealth management services.

Why do I need an offshore bank account?

An offshore bank account isn’t nearly as exotic as it sounds. These accounts can assist an expatriate in ordinary ways – chief amongst them is the management of money transmission instructions (incomings and outgoings) via an account that ensures your foreign earnings and income remain as offshore as you. This convenience will endorse your non-resident tax status with the UK tax authorities, as well as reward any balances you achieve with interest paid gross. Although you will have to meet any taxes dues on gains and profits derived from offshore accounts in your country of residence. In theory, offshore banks understand your money transmission activities better than their onshore peers. For example, you won’t find yourself explaining in pained detail why you need an account, which can handle several different currencies, nor will you be asked to pop into the local branch to explain some query on your account.

Where are the offshore banks?

Offshore banks can be located in all the finance centres located around the world. But for this type of workhorse account chiefly denominated in sterling, expats should look to the Channel Islands and the Isle of Man to find a spread of international subsidiaries of the UK’s High Street banks. While the choice of banks is dwindling due to a spate of mergers and takeovers, along the main streets of the principal cities of these islands you’ll find names such as HSBC Bank International, NatWest International and Lloyds TSB Offshore.

What you get for your money

The noticeable difference between an offshore cheque account and its onshore cousin lies in a common insistence of a relatively high minimum balance which must be maintained on account. Think in terms of a thousand pounds and with some banks as much as £25,000.

As for features, cheque guarantee cards and other enabling plastic, overdrafts and loans, standing orders and direct debits, the extent of online banking facilities and so on, the only satisfactory route to ensuring you open an account which truly matches your needs is by putting in the necessary leg-work. Of course, leg-work in this instance means logging on to the banks’ websites and researching the features of each account. Start off with a list of facilities you know you’ll need. Try not to get swayed by add-ons you see emblazoned across the screen if they are the type of product or service you know you will never call upon – after all, each extra offering will have a price tag somewhere down the line, whether this be in lower interest rates offered or buried in the bank’s tariff of services.

Pick a currency, any currency

The very nature of living/working overseas means all expatriates will be juggling currencies. At the very least you’ll be dealing with two – the currency you are paid in and/or the currency you are spending as well as sterling, particularly if you have pensions or regular financial commitments back in the UK. But even with this seemingly straightforward division, boundaries become blurred. Many expats are paid a percentage of their salary in sterling and the remainder converted into the local currency to meet everyday living expenses. Those working with international companies find themselves paid in US dollars, or having all of their salary paid in the local currency.

Multi-currency banking is an area in which offshore banks shine. Basically, these are umbrella accounts, under which various sub-accounts can be maintained in different currencies according to an expat’s personal needs. Such an account enables you to receive your income in a foreign currency, say US dollars, while at the same time and from the same place, meet ongoing commitments, (say, a life policy, mortgage repayments, school fees) in, for example, sterling.

Within the offshore banking sector, there’s a range of multicurrency accounts sheltering the big three, sterling, US dollars and euros. Some banks specialise in offering a much wider choice of currencies. Royal Bank of Canada (Channel Islands) offers five currencies with its Executive Plus account, while Investec Bank’s (CI) Private Interest Current Account covers sterling, euro, US$, Australian $, Canadian $, Japanese Yen, South African Rand, and the Swiss Franc.

What it’s going to cost you

There is little uniformity between banks in terms of which services incur charges and what those charges might be. An acceptable fee to one customer will seem like an outrageous rip-off to another and vice-versa. Banks justify their charges on the basis that they regularly deal in cross-border transactions utilising different currencies. Many of the charges imposed, therefore, are a reflection of the fees they have to pay other banks in the chain of command.

As a general rule expect the following to be fee-free: cheque books, cheque cards and internet banking. A number of banks allow for a set number of free standing orders per year (usually half a dozen) which is worth asking about. Expect to pay for ancillary services such as bank-to-bank payments, telegraphic transfers, local currency cash withdrawals, foreign currency exchange, foreign currency cheque clearance and credit cards.

Familiarise yourself at the outset with the tariffs levied for every type of instruction or request you are likely to make – remember these might include quite minor items, such as sending a fax or even an email confirming a payment has gone through.

Many offshore banks package their services within a club-style account. In these cases, customers must also be aware that the bank might make additional charges on top of the annual standing fee depending on the services used.

At the end of the day, you need to work out whether the convenience of having an offshore account is worth the ever-rising cost.