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Offshore savings accounts

Earn interest on your stash of savings, even if you're living overseas.

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By

Valentina Cipriani

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The word “offshore” immediately evokes tax havens and dodgy practices, but actually, offshore savings accounts are a perfectly legal financial product that can make an expat’s life much easier.

Here we cover how they work, who can benefit from them and how to compare them to find the best deal for you.

What are offshore savings accounts?

They are savings accounts that can be opened by people who don’t live in the UK. They’re usually in sterling, but can be held in other currencies as well.

They’re most commonly opened by expats or by residents of jurisdictions that are considered “offshore”, such as the Channel Islands or the Isle of Man.

How do offshore savings accounts work?

Offshore savings accounts work mostly like regular savings accounts – you move a sum into the account and earn interest on your savings. You can choose between fixed-term and easy-access accounts, and the longer you agree to “lock away” your money, the higher the interest rate you’re likely to get.

The main differences are the following:

  • You can apply even if you’re not a UK resident. This is not normally the case with onshore accounts.
  • Offshore savings accounts tend to require higher minimum deposits. It isn’t uncommon to be asked for a £5,000 or £10,000 minimum deposit, although a few accounts can be opened with as little as £1.
  • They’re not protected by the FSCS. But they usually offer some other kind of deposit protection. More on this below.

Who can benefit from an offshore savings account?

In broad terms, anyone who lives abroad but wants to open a savings account in sterling. For example:

  • Expats who earn their salaries/have their pensions paid in pounds. An offshore savings account allows you to save some of your earnings and earn interest without having to convert the money into the local currency.
  • Expats who move often/plan to return to the UK eventually. If you change country often, there’s no point in moving your savings every single time, especially if they’re in pounds. You can just keep them in an offshore savings account and “forget” about them until you settle down more permanently.
  • UK expats/other nationals who acquire wealth in sterling. For example, through investment or because of an inheritance.
  • Residents of an offshore jurisdiction. As we said, people who live in the Isle of Man, in the Channel Islands or in places like Monaco, Switzerland and Lichtenstein may find it more practical to open an offshore account than a local one.

Do I need to pay taxes on the interest I earn?

As you can imagine, keeping your money in an offshore account doesn’t mean you can just forget about taxes. Just like with a UK savings account, interest is paid gross, and you have to pay taxes on it if you earn more than your personal savings allowance (which is £1,000 a year).

Depending on where the account is based, you may also be required to pay taxes in that country. If that happens, you should be able to claim UK tax relief thanks to double taxation agreements. The UK has them with more than 100 countries and they basically prevent you from paying taxes twice on the same earnings.

Offshore savings account fees and costs

Opening a savings account should normally be free, and that’s usually the case with offshore savings accounts too. However, there may be fees to pay in a few cases, particularly:

  • To make a withdrawal. Depending on the type of account, in some cases you may be unable to withdraw your money; in others, you may be charged a fee or not be accredited any interest.
  • If you don’t maintain the minimum balance. Again, you may be charged a fee or not be paid interest.

Fees and penalties vary hugely by bank and account type, so always read your terms and conditions carefully before finalising your application (yes, they’re long and wordy and may seem unattainable, but they’re actually your friends!).

Are offshore savings accounts safe?

While not protected by the FSCS, offshore savings accounts often come with some level of deposit protection, provided by the country in which the account is based. The Isle of Man, Jersey, Guernsey, Gibraltar and countries in the European Union all have their own deposit protection schemes.

Before applying for an account, always make sure it is covered and double-check the limits and conditions of the deposit protection offered, which may be a bit different than the standard ones provided by the FSCS.

Pros and cons of an offshore bank account

Pros

  • You can apply even if you’re not a UK resident
  • Can be held in multiple currencies
  • Can be useful for expats or residents of offshore jurisdictions

Cons

  • Tend to have higher minimum deposit requirements
  • Not protected by the FSCS (although there should be some level of deposit protection)
  • You might have to pay a penalty if you withdraw funds or don’t maintain the minimum balance

Bottom line

An offshore savings account can be particularly beneficial if you’re an expat or if you are a resident of an offshore jurisdiction such as the Isle of Man or the Channel Islands. But as with any savings account, it’s important to check things like the minimum deposit requirement, how much interest you’ll earn and whether there are any fees before you make a decision.

Frequently asked questions

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