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Expat Investor : November 2008
OFFSHORE SAVINGS On your marks, get set, go where? So, only compare one instant access account with another and only compare balances on the same tier levels – for example don’t weigh the rate offered on a sum of £2,500 against the rate being offered on a balance of £50,000. Similarly with notice accounts – only compare the rates offered by 90 day accounts with the rates on offer from over the same notice period. Watch for consistency Savers keen on hunting down the best interest rate for their deposits, often make the mistake of switching between deposit takers with each interest rate rise. But the best rate payers of today could easily be the laggards of tomorrow. To achieve a good rate, it is usually better to track down those building societies and banks earning their crust from a reasonable level of consistency rather than the one hit wonders. There is nothing more likely to Continued from page 7 transfers between accounts. All expats comparing accounts should be aware that some savings accounts advertise a high rate of interest which closer inspection reveals will apply only for a short period of time. It is always important to read the small print and check out how long the account has been on the market as well as its consistent track record in maintaining consistently good rates. Some savings accounts also include additional enhancements such as the provision of a debit card. Certain banks offer their savings account customers a related current account with features such as a personalised chequebook and/or a debit card. Specialist offshore banking groups understand the lifestyles of those living and working abroad. You may be dividing your time between different countries, retiring abroad, temporarily moving to develop your career overseas or working on contract, perhaps for a fixed period, but retaining your main residence at home. Whatever the circumstances, it is possible that a sterling account may not always be the most appropriate. When comparing savings accounts, check out the savings schemes available in a choice of currencies. Your preference may be for the US dollar or euro, for example, particularly if your salary is paid in one of these currencies. Be sure that the savings accounts you are comparing offer similar features. Take into account the notice periods, and then make a judgement about rates offered. It’s likely you will see two rates advertised, one labelled ‘gross rate’ and another with the acronym AER (annual effective rate). Offshore banks tend to pay interest gross, which means without any deduction of tax. on the interest payment compounded during the course of a full twelve months. The AER is generally a more useful indicator of the amount you will earn in interest each year than the gross rate. Ultimately, you should maintain a savings account with a financial services organisation that “Just because a deposit-taker offers a good rate, there’s no guarantee that it will continue to do so once business has been built up – unless of course it’s a fixed rate account.” However, all savers should note that jurisdictions such as Jersey, Guernsey and the Isle of Man are signed up to the European Union Savings Tax Directive (EUSTD). You will be affected by this if you are a resident for tax purposes in an EU Member State. In this case, a withholding tax is payable on the interest earned on your savings. There is, however, an alternative which involves exchanging information with your home tax authority. Your financial services provider can explain the details to you. AER is the annual effective rate and is a clearer reflection of the amount of interest you will earn annually. Some savings accounts pay interest monthly, others quarterly or twice a year. The AER is a calculation based demonstrates an understanding of your particular circumstances. Such an organisation will concentrate on delivering a high quality service through its range of products and services which will be tailored to the expatriate marketplace and based in a reputable and highly regarded offshore jurisdiction such as the familiar British Crown dependencies of the Channel Islands and the Isle of Man. Choice is important in financial services particularly for expatriates and it is worth comparing the offerings of the various providers closely before choosing where to keep your savings. Making comparisons When sifting through the different rates on offer, it is essential to compare like with like. make existing building societies, and their savers twitchy than a new-kid- on-the-block. These newcomers sail into the offshore market on a wind of high interest rates and make a highly visible splash in order to jostle for position in an extremely competitive market. Savers must weigh up the risks of potential rate losses if they switch accounts too early. Just because a deposit-taker offers a good rate, there’s no guarantee that it will continue to do so once business has been built up – unless of course it’s a fixed rate account. The wise will wait a while watching rate movements to check that any newcomer continues to deliver the initial promise. Be a penalty beater In the same way that time has an important role in achieving better rates, so, too does the total sum on deposit. Penalties for breaking any of an account’s terms and conditions must be borne in mind.Withdrawals which are made before the account’s term has been completed are the most typical way in which savers incur a penalty. These penalties are taken from the interest payments due when the conditions of the savings account are not adhered to. However, increasingly, deposit- takers are offering special concessions attached to notice accounts, in particular those which incur 180 days or more notice. For those savers unsure of whether a sum of money could be needed before a defined date, check out those accounts which permit a set number of withdrawals without notice and with no loss of interest. However, make sure, too, that you read all the small print attached to We make savings simple for you 1 Year Fixed Rate Bond £ Also available * 6 Months Fixed Rate Bond * International 30 6.75% 8 EXPAT INVESTOR ? November 2008 5.35% € Gross/AER Gross/AER such offers. For instance, particularly if the term is 180 days or more, there are various accounts which offer depositors a pre-agreed number of withdrawals over the course of a year without incurring any penalty. For some expatriates this concession affords sighs of relief. Charges Always check out the cheapest option for paying monies into your offshore deposit account. Cheque payments may be costly unless it is a sterling cheque drawn on a bank within the UK clearing system. Expats are also urged to clarify the costs of electronic transfer at the outset particularly depositing in relation to smaller amount. Depositors’ safety-net Depositor-protection schemes are worth knowing about. At the time of writing, only the Isle of Man has a depositor compensation scheme in place. On this particular island there is a wide range of well-known deposit-takers. The Isle of Man depositor compensation scheme compensates savers who have money in current and deposit accounts in the Isle of Man with up to £50,000 of net deposits per individual deposit per deposit-taker, if a bank or building society fails. This means that a maximum of £50,000 compensation is payable per individual. Savers with the collapsed Kaupthing Edge based on the Island should qualify for this compensation if Kaupthing Singer &Friedlander is declared in default. Elsewhere, notably Jersey and Guernsey, all of the financial institutions based there must state in their promotional literature that they are not covered by the Deposit Protection Scheme under the UK Banking Act of 1987. However, offshore building societies and banks will normally include a written note to the effect that their parent company has given a legal undertaking to discharge the liabilities of the offshore subsidiary if it is unable to meet those liabilities out of its own assets. Sterling savers with UK-based depositors have been reassured by the lifting of the compensation sum from £35,000 to £50,000 as from last month. If your balance exceeds this sum, best advice is to split the nest-egg amongst different deposit-takers to ensure all of your savings are covered. The same goes for offshore deposit accounts. Savers are also urged to investigate ultimate owners of banks, because if your deposits are placed within the same group, then your entitlement to compensation will not apply to each account you hold, just the one. 3.40% $ Gross/AER Download an application form at www.irishpermanentintl.com +44(0)1624 641641 expatinvestor.com for a personal service Individual product terms and conditions apply. Interest rates are quoted gross p.a. without any deduction of tax. AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. The minimum opening balance is £10,000/€10,000 or US $10,000. Irish Permanent International is a registered business name of Irish Permanent (IOM) Limited which is licensed by the Isle of Man Financial Supervision Commission for Banking and Investment Business. Registered Office: 12/14 Ridgeway Street, Douglas, Isle of Man. IM1 1EN. Irish Permanent International is part of the Irish Life and Permanent plc Group. Fast Facts 99005