Offshore v Onshore Saving

MrMicawber_2

I have friends who have around 40k to save (not invest) for a period of up to a year. I am suggesting to them that it would be a good idea to maximise their cash ISA allowance and put the rest into the most appropriate savings account available.

The big question is not the type of savings account (instant access, term, notice etc), but whether or not the money would be better placed in offshore or onshore account/s.

Given that rates available are about the same for both and that there is no huge tax advantage of offshore accounts I would go for the simplicity of a decent onshore account.

They are also wondering whether or not to take financal advice on what to do with the money but given that they are not looking to invest I would have thought that this, given the expense, would not really be appropriate at this point.

I would welcome any views.

Many thanks.

LongTermLurker

Onshore (UK) accounts tend to have higher protection. Under FSCS rules, you would be protected up to £35000 but the Halifax International IoM accounts, for example, only protect you up to 75% of the first £20000 per customer. As you say, there are no great benefits that I can see.

It would seem most sensible for them to put £3600 each into the best cash ISA they can find and put the rest somewhere like Kaupthing Edge (7.15% in a 1 year term deposit, fully protected by the FSCS scheme up to £35k). It's worth noting that ICICI, typically one of the first to raise their rates, have just announced they will be reducing them - that could just be because they have secured enough deposits to make them less hungry, or it could be that they expect interest rates to fall generally - they may be wrong but it may be worth acting sooner rather than later - who knows?

There is no point in paying for financial advice for a £40k cash deposit imo.

MrMicawber_2

Many thanks - this entirely confirms my views - any other thoughts from others?

dunstonh

Offshore investments still have benefits as you can get gross roll up and deferment. However, offshore savings wont benefit the individual from a tax point of view. Whilst savings accounts can be placed into an offshore investment bond you need a lot more money and a lot more years of it being there to take advantage of the tax situation.

IFAs are planners and investment advisers. Not savings account advisers. For savings accounts we would just look at the moneyfacts and see who is coming out best. The same as you would do yourself online.

MrMicawber_2

Many thanks - I was sure this was the case but wanted to be certain & yes, I realise that IFA's aren't savings advisors.

charliebob

I do not live in the UK so cannot invest in UK banks. At the moment my money is in the Guernsey branch of a well known UK building society (and I have Witholding Tax deducted from interest which has recently dropped to 2.8%!)
I am worried about the safety of my money as Guernsey is not covered by the UK compensation scheme. I am thinking of moving into Premium Bonds, probably not the best solution, but can anyone offer any better advice.

pumpndump

charliebob wrote: »

I do not live in the UK so cannot invest in UK banks. At the moment my money is in the Guernsey branch of a well known UK building society (and I have Witholding Tax deducted from interest which has recently dropped to 2.8%!)
I am worried about the safety of my money as Guernsey is not covered by the UK compensation scheme. I am thinking of moving into Premium Bonds, probably not the best solution, but can anyone offer any better advice.

Premium bonds are a kind of lottery, which is not gambling because you cannot lose your stake. Is this what you mean by "premium bonds", or do you mean uk government bonds generally? If the latter, go to the bank of england's gilt website and ask if they do bonds with special coupons (i. e. the interest rates) for ex-pats. (I know they used to years ago. These had a higher coupon than those sold to people fool enough to live in the UK.)

Aegis

pumpndump wrote: »

Premium bonds are a kind of lottery, which is not gambling because you cannot lose your stake.

You do lose your stake though, as you gamble your interest from the savings amount.

pumpndump

You do not lose your stake with premium bonds because you can sell them back and put the money back into your savings account. I agree that the money would probably be better off earning interest in most cases.

A lot of super rich utilise their maximum premium bond allowance because any winnings are tax free.

dunstonh

You do lose your stake with premium bonds effectively as its the interest that you are playing with. It may be packaged slightly differently but that is what you are losing in exchange for your gamble.

A lot of super rich utilise their maximum premium bond allowance because any winnings are tax free.

Yes. Because they can afford to put the money in there for the tax free average without being hit for 40%. However, a 3.4% is the current average and even with 40% tax, you can beat that average easily on the market place without having to enter the Govt lottery.

Premium bonds should really be the last of the tax free accounts/products used by higher rate taxpayers. Problem is too many basic rate taxpayers who cannot afford to play the gamble stick their money in there in hope of a win but typically end up with just a few £50 every now and then.

Jonbvn

charliebob wrote: »

I do not live in the UK so cannot invest in UK banks. At the moment my money is in the Guernsey branch of a well known UK building society (and I have Witholding Tax deducted from interest which has recently dropped to 2.8%!)

If you live outside the EU, you should not be paying withholding tax. If you live inside the EU, you can request that your bank pays interest gross, which is then declared to your local tax authorities where you reside.