Offshore Savings Accounts

Offshore savings accounts are a viable way to earn higher interest than you can in an Australian high interest savings account, while also offering you lower fees and tax advantages. Benefits of an offshore savings account include:

• The bank in the country in which you choose to open an offshore savings account will utilise your savings to make investments and support their local economy, just as Australian banks use the funds in their savings accounts and term deposits.
• Banking in offshore savings accounts is conducted entirely electronically and therefore an offshore savings account attracts low transaction fees and account fees.
• Offshore savings accounts only operate in areas with legislation which is conducive to banking services.
• An offshore savings account is a very secure and private investment as the accounts can be managed with access codes only and minimal personal information.
• Conducting international business is easier with an offshore savings account; if you send money overseas or accept international payments with an Australian savings account you will attract higher fees, however international accounts offer the same fee structure no matter where you are accessing the account from.
• You won’t have all of your cash in one basket. It is easy to set up more than one offshore savings account to spread your assets and investments across different countries and different economies. In this way you don’t have to worry that you might lose everything if the local economy is affected.
• You will always get the highest interest rate, often higher than a local high interest savings account. Offshore savings accounts are able to take advantage of global interest rates and opportunities which you normally wouldn’t be able to benefit from.

Can an Offshore Savings Account Really Help You Avoid Taxes?

Offshore savings accounts don’t allow you to avoid paying tax all together, but they do allow you to take advantage of lower tax rates. For example, if you have paid tax on your savings in the country where your offshore savings account is held, you may even be entitled to a tax credit too.

Paying lower taxes on your savings by using an offshore savings account is legal, as long as the funds are declared on your tax return. In 2010 the Australian Taxation Office plans to take a hard line on Australians who have undeclared income in offshore savings accounts. The world is becoming a smaller and less anonymous place and the ATO now has access to information about favourite tax havens of Australian investors, that they never previously had any knowledge of.

To give Australian investors the chance to legitimise their offshore savings account investments, the ATO is giving until 30 June 2010 for Australians to anonymously contact them to ask for an indication of whether their activities are those which will be pursued by the tax office.

Performance of Euro Offshore Savings Accounts

In recent years the gap between the European Central Bank interest rate and the interest rates offered on Euro offshore savings accounts has been narrowing. Between 30 April 2008 and 31 July 2008, the difference in the average interest rate narrowed by 0.04% to 0.32. This is at a time when the ECB raised their rates by 0.23 basis points, and Euro offshore account interest rates then rose by 0.29%, raising the average interest rate offered to 3.93% which is 32 basis points below the ECB rate.

Performance of US Offshore Savings Accounts

Investec Bank Limited, in the Channel Islands, found that as at 31 May 2009 there were only six of the 34 US dollar offshore accounts which were paying investors 1.00% or more on their savings. Over a quarter of US dollar offshore accounts pay no interest at all, and 47% of accounts pay less that the current Federal Reserve rate of 0.25%. The Federal Reserve Rate remained constant in the three months from February to May 2009; however, the average rate of offshore savings fell by 0.05%, to 0.48%. This drop follows a fall in the previous quarter too, when US offshore accounts rates fell by 0.75% to 0.53% and this drop correlated to a drop in the Federal Reserve rate during the same period.

Despite so many US offshore savings accounts paying low interest rates, 53% were paying the Fed rate or more, and 35% were paying 0.5% or more.

Investments in AU Dollars from Offshore

The Australian dollar has shown an overall growth in 2009 and has increased 33% against the US dollar and is the best performer among the world’s most traded currencies. However, when you’re performing well, even a small dip can make investors nervous as was the case when a high of 92.56 US cents was followed by a close of 91.97 after the December 2009 interest rate rise. This weakness has caused many investors to consider selling their Australian dollar interest to buy them back in a stronger time; with such a strong and steady rise, the Australian dollar has so much further to fall and is therefore the most vulnerable to a sharp loss.

How to Open an Offshore Savings Account

While many Australian banks and international business banks will offer offshore savings accounts, you will need to work with a financial advisor or tax agent to open and manage your offshore account.

Open and manage offshore savings:

• Seek advice from your financial advisor, and the assistance of your accountant or an authorised and recommended Australian tax agent.
• Once you have compared the offshore savings account options and found the country you can get the highest interest rate and the most tax benefits you will need to provide only minimal personal information.
• The anonymity of offshore savings accounts means they require only low personal documentation, this documentation and authorisation is conducted through a legal banking agent.
• Your legal banking agent will explain, organise and guide you through the process of opening an offshore bank savings account.
• Your agent will also take care of communications with the bank of your choice, and manage your account to your wishes.

It is important to remember that comparing offshore savings accounts requires the same time and care as comparing local high interest savings account. Plus, you’ll need specialist tax and legal advice to ensure you don’t jeopardise your investments. Also remember that you may not have the same access to your funds in an offshore account as you do in an ordinary online saver, because while the business with your international bank is conducted online, you’ll need to allow for time differences and even local holidays.