Email to a friend

How to save money with offshore savings

Offshore savings accounts are typically run from the Channel Islands, Isle of Man and Ireland and most of the major UK banks, such as Alliance & Leicester, Nationwide BS, Bradford & Bingley offer savers offshore savings accounts.

Most offshore savings accounts are multi-currency, allowing savers to deposit money in sterling, euros and dollars and also allow withdrawals by cash or cheque in any country. The benefits of offshore savings accounts are the tax advantages they offer savers.

Article continues below

1. What are the tax benefits? UK residents can gain from the tax rules governing offshore savings accounts, as interest is paid gross without income tax being deducted. UK residents must declare the interest on income on their self-assessment return (and as the BBC recently reported, the Taxman has been clamping down on this), however, this time deferral can benefit savers with large deposits as the offshore savings account can roll up payments and earn interest on the gross amount thus producing a bigger return on your savings overall.
2. Are there any disadvantages? The main disadvantage of offshore savings accounts is that they are not covered by the UK Financial Services Compensation scheme. Whilst unlikely, the Northern Rock crisis highlighted that banks can suffer financial difficulties. Even though many of the offshore savings account providers are household names, the protection on offer is different to UK based savings accounts as the depositor rules are based upon where your money is held. Read our article on “Offshore savings - great rates, but are your savings safe?” for more information. This is an important consideration given that offshore savings are typically associated with larger deposit balances.
3. What types of offshore savings accounts are there? The types of offshore accounts available are notice, no notice, fixed rate and monthly interest savings accounts.
4. Fixed rate offshore savings accounts. Fixed rate offshore savings accounts offer a fixed rate of interest over a set period, which is good if you want to protect yourself from falling interest rates, or want to know exactly how much interest you’ll earn. Early access to your offshore savings usually requires you to close the account and you may be subject to a penalty, such as loss of interest. Most fixed rate offshore savings accounts require a minimum balance of £5,000 or £10,000 and the gross interest rate is typically higher than a notice or no notice account. Have a look at the current offshore savings fixed rate accounts best buys to check the latest savings rates on offer.
5. Notice offshore savings accounts. Notice offshore savings accounts require notice to be given to withdraw funds to avoid any penalty, such as loss of interest. The notice period is typically 90 days and most notice accounts require a minimum deposit of £5,000 or £10,000. Have a look at the current offshore savings notice accounts best buys to check the latest savings rates on offer.
6. No notice offshore savings accounts. No notice offshore savings accounts do not require you to give any notice to withdraw funds without penalty, such as loss of interest. The gross interest rate on no notice offshore savings accounts will be lower than those where notice is required. Most no notice offshore savings accounts require a minimum deposit, which can be as low as £1,000 or as high as £25,000. Have a look at the current offshore savings no notice accounts best buys to check the latest savings rates on offer.
7. Monthly interest offshore savings accounts. Monthly interest offshore savings accounts may be notice or no notice accounts and pay interest monthly, rather than annually or on account maturity. These suit people looking for regular income from interest payments. Most monthly interest offshore savings accounts require a minimum deposit, which can be as low as £1,000 or as high as £100,000. Have a look at the current offshore savings monthly interest accounts best buys to check the latest savings rates on offer.
8. Terms and conditions to watch out for. It’s always sensible to check the terms and conditions of your preferred offshore savings accounts. Things to watch out for are:
• Withdrawals – although you may not have to give notice to make a withdrawal, some offshore savings accounts include conditional bonuses in their interest rates, which often relate to the number of withdrawals made over a certain time period.
• Unconditional bonuses – some offshore savings accounts include a bonus interest rate, which whilst attractive at the outset, can reduce considerably once the bonus rate period ends.
• Rate guarantees – some offshore savings accounts will offer a guarantee on the rate of interest you receive, which are often linked to the Bank of England base rate, and have the same effect as a bonus.
• Conditional bonuses – some offshore savings accounts include the ability to obtain a higher rate of interest if you hold your current account with the same provider, or if you don’t make any withdrawals over a set time period.

What to do next:

• Compare Offshore Savings Accounts Best Buys
• Read our Offshore Savings Accounts Guides
• Read our How to make your savings go further article