Leanne Macardle

Leanne Macardle

Editor
Published: 30/01/2019

At a glance

  • An offshore savings account is held outside of the UK, allowing you to save as an expat and/or in different currencies as a UK resident
  • Anyone with the right deposit and residency or citizenship requirement can open such an account
  • Tax will still need to be paid on these accounts and there will be different depositor protection schemes to take into account, so do your research before committing to offshore savings.

Offshore savings accounts explained

The main selling point of offshore savings accounts is that you don’t need to be a UK resident to have one, as well as being able to choose which currency you’d like to save in. However, the rates tend to be lower than on ‘normal’ savings accounts, so for anyone resident in the UK who isn’t planning to leave anytime soon and doesn’t have frequent business dealings overseas, there’s not much incentive to open one of these accounts.

That said, if you’d like to have some cash savings in Euros or US dollars, there are several offshore accounts that can offer this. As with UK-based savings accounts, you have a choice between easy access, giving some notice or putting the funds aside in a fixed rate bond.

Who can open an offshore savings account?

You don’t need a lot of money to open an offshore savings account. You do, however, need to adhere to either a British citizenship requirement (for expat accounts) or specific resident requirement, with some accounts open to Isle of Man, Channel Island and Gibraltar residents, or even UK residents.

While most of these accounts will ask for a minimum deposit of £5,000 or £10,000, there are some that can be opened with just a single pound. Again, whether such an account would be worth opening over an ‘onshore’ savings account would depend on your residency status and needs. Always compare offshore savings accounts with onshore equivalents as well as each other to help ensure you’re making the best possible choice.

How to open an offshore account

As with any savings account, different providers will offer different means of opening and operating their accounts. Some of the offshore providers are subsidiaries of the bigger UK banks and building societies, and these will likely have more account management options. You won’t need to book a trip abroad to open such an account, with many accounts being able to be opened by post, telephone or online.

While the opening requirements will differ between providers, they will all ask for proof of identity and proof of address, and will require you to be at least 18 years old. Some will have additional requirements, such as asking you to prove that you can afford to keep the account funded, although these kinds of requirements are more common with offshore bank accounts for everyday use (which tend to come with large fees).

Do you pay tax on offshore savings?

Unlike what you might think based on the news, the money in offshore savings accounts is not tax-free. For UK tax purposes, the same personal savings allowance is applied to any savings held in an offshore account, which means that basic rate taxpayers can earn the first £1,000 in savings interest per year without having to worry about taxation.

Anything above this will need to be declared through a self-assessment form with HMRC as income. While this means you would then have to pay some tax, there could be a welcome delay – depending on when you open an account and when the tax year ends – that allows you to add some more savings interest before taxation gets applied.

Remember that you may have to pay tax in the country you are residing in as well, so make sure you have everything sorted out fair and square – you don’t want to get into trouble with any government or pay double tax when you don’t need to. Given the numbers likely involved in all of this, you may even want to get professional advice so you can be sure you’re always declaring and paying the right amount for taxation.

Are offshore savings protected?

Offshore providers are not covered by the UK’s Financial Services Compensation Scheme, which protects £85,000 of your savings per banking institution no matter what happens. However, there will be comparable compensation schemes, such as the Isle of Man’s Depositors’ Compensation Scheme, which protects up to £50,000 per individual depositor.

Any money held in an offshore account will not be subject to the UK Financial Services Compensation Scheme (FSCS). Check with the provider as to whether you will be protected by an alternative deposit protection scheme, depending on where the bank is located. 

Pros and cons of offshore savings

  • Beneficial to expats who can’t find a better savings deal in their new country of residence
  • You can pay various currencies into these accounts and have the account in the currency of your choice (pound, Euro or US dollar)
  • You may be able to get a better return if you save in the strongest currency as well as the best available account, depending on currency fluctuations and conversions
  • The best offshore savings account providers will have a dedicated team of experts who should be able to help you with your international investment queries.
  • Offshore savings account interest rates are generally lower than onshore rates – always check the up-to-date chart to see how rates are doing whenever you are looking for one
  • Most offshore savings accounts will have high deposit requirements
  • They take a bit more hands-on work to make sure you are declaring all your savings income for tax purposes
  • Less of your money may be protected compared to onshore savings accounts.

To see what depositor protection scheme your savings provider falls under, head over to our guide on these schemes, which looks not just at what is covered by different countries, but also lists banks currently operating in the UK or its crown dependencies.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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At a glance

  • An offshore savings account is held outside of the UK, allowing you to save as an expat and/or in different currencies as a UK resident
  • Anyone with the right deposit and residency or citizenship requirement can open such an account
  • Tax will still need to be paid on these accounts and there will be different depositor protection schemes to take into account, so do your research before committing to offshore savings.

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