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Expat Investor : December 2007
expatinvestor.com 24 EXPAT INVESTOR December 2007 FIRST PERSON Spotting discrepancies in rates on offshore savings accounts Offshore savings accounts can be useful financial tools for those who own property overseas that provide rental income, as well as for those who work or have retired abroad. This is mainly due to the tax advantages such accounts can afford. However, it is worth noting that the rates on offshore deposit accounts, as with onshore ones, can vary significantly and do not necessarily track the currency base rate. Aware that this was the case, in 2006, Investec Bank (Channel Islands) launched an Offshore Savings Index to monitor the performance of the offshore US dollar and euro accounts against the US Federal Reserve (Fed) and European Central Bank (ECB) rates. In the past six months, the Index has revealed some interesting trends, particularly on the US dollar front. For example, despite the fact that there had been no change in the Fed rate between 31 January and 30 April 2007 (the rate remained 5.25%) the average gross return on US dollar offshore savings accounts increased from 4.03% to 4.61%. These rate increases were largely attributed to growing competition amongst providers which was driving up rates - great news for savers. However, the most recent US dollar Index, at the time of going to press, which analysed movements between 30 April and 31 July 2007, revealed that the average gross interest rate had fallen back down again to 4.55%; again despite no change in the Fed rate, which had stuck at 5.25% since 30 June 2006. The Fed rate was decreased by 0.5% on the 19 September 2007 and it will be interesting to see the effect that this has on the next index. On the euro front, the situation has been similar during the past six months with the average euro offshore savings account as at 31 July 2007 offering 0.70% less than the ECB rate of 4.00%, just 3.30%; compared to an average rate of 0.64% below the ECB rate three months prior. This is made all the more surprising by the fact that the ECB rate increased by 0.25% during this time, showing that clearly not all banks increased their rates in line with the ECB. These findings highlight the importance of keeping a close eye on the interest rate on your savings account as rates can fall and rise on accounts regardless of whether the base rate has also moved. However, the discrepancy in interest rates paid on offshore savings accounts is not a new phenomenon. Investec established its 90 day notice Investec Horizon Account two years ago to meet demand from many expatriates who were being paid in US dollars or euros but receiving poor returns from their euro or US dollar offshore accounts. Strong competition in the sterling offshore savings account market place meant that many bank accounts paid interest at the Bank of England base rate or above. However, at the time, few offshore bank accounts were offering returns that were anywhere near the US Federal Reserve or European Central Bank rates. The Investec Horizon Account comes with a commitment that the interest rate will not fall below the Fed, ECB or BOE rate on account balances of at least $50,000, 50,000 or £25,000, which includes striving to pass on any base rate increases immediately to clients. It is natural for savers to expect that a bank, whether providing offshore or onshore accounts, will look to pass on any base rate increases where possible to its clients. Savers who do not feel that this is the case, could benefit significantly from switching not just to a different account but to a bank with a different philosophy and a client focused approach. Zurich Bank International has recently launched a euro version of its highly successful 1 Year Fixed Rate Bond series, and will also shortly be launching a euro version of its easy access Zurich Reward Account. In launching these products, Graham Sheward, Managing Director, Zurich Bank International, said, "When we launched the highly successful Sterling Zurich Reward Account in August 2006, we knew that this product was the first of a number of new initiatives to offer customers a new generation of uncomplicated and transparent products which match their needs. Both these new products build on our promise to customers to offer simple, high interest products with guarantees which match their needs." Mr Sheward continued, "Whilst the Euro 1 Year Fixed Rate Bond series will provide customers with the certainty of knowing how much interest they will receive over 12 months, the Euro Zurich Reward Account will offer two interest rate guarantees, as well as easy access to funds without any interest penalties." The first guarantee on the Zurich Euro Reward Account is that the interest rate will be 0.25% above the European Central Bank (ECB) Base Rate until at least 1 January 2009. The second guarantee is that the interest rate will never be more than 0.25% below the ECB Base Rate until 1 January 2010. Both accounts are available to all personal customers, third party introducers, companies, trusts, charities and clubs. The Euro 1 Year Fixed Rate Bond offers a choice of payment options on maturity. These accounts are ideal for those customers who either get paid in euros or wish to save in euros, perhaps for a house purchase in Europe or for a holiday. Zurich suggests that for customers who live or work abroad in the Euro Zone the bulk of their funds could be in an offshore savings account such as the new easy access Zurich Euro Reward Account or in the Euro 1 Year Fixed Rate Bond, as these accounts will pay higher rates of interest than current accounts. Customers could then have a local currency current account with a small amount to cover day-to-day expenses. The high interest accounts can then be used to feed the transaction accounts at periodic intervals. For further infor mation on Zurich's accounts and to download leaflets and application for ms please access the website www.zurichbank inter national.com Laura Preston, Investec Bank (Channel Islands), warns expats to be vigilant on interest rates offered by offshore deposit-takers or you could sign up with a league table laggard. Fast Facts 10470 Money Tool from Zurich Bank International MORE INFORMATION? Enter the Fast Facts number into the Reader Reply Service coupon on page20orgoto www.expatinvestor.com
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