If you thought Swiss bank accounts were only for James Bond baddies, think again. Offshore banking is a viable option for people looking for a safe place to save their money, according to financial experts. And its popularity is growing.
The reasons why people decide to bank offshore are numerous, but concerns over economic and political stability tend to be the most common reason, explains Preeti H. Bhambri, Founder of Moneycamel.com. Others like to send their long-term savings to a country they will move to eventually.
But for many expats living in the Middle East, the region’s inheritance laws are a major, if not the biggest, consideration. “Expats who do not want their savings to be subject to Sharia law also tend to park their savings offshore,” says Bhambri.
Luckily for them there is no shortage of options, with everywhere from the UK’s Channel Islands, to the Cayman Islands, Singapore and Switzerland to choose from. “Traditionally I would say the offshore banking centres have been places such as Jersey, Isle of Man, Guernsey, the Channel Islands,” says Julian Vydelingum, Senior Wealth Planner for Killik Offshore. “Switzerland had more of a stigma because it sort of became synonymous with money laundering and things like that, just because it had higher levels of secrecy laws. There’s nothing wrong with banking in Switzerland. The Cayman Islands is growing as an offshore jurisdiction.”
They may be based in another country, but offshore banks offer a range of convenient options such as multiple currencies and even the opportunity to open an dirham account so it is easier to move money. And then there’s the convenience they offers long-term expats. “If you’re moving to Hong Kong or Singapore you know you don’t have to close the account so it’s just another thing to leave off the [to-do] checklist,” says Vydelingum.
However, that is not to say there are no disadvantages to offshore banking. Offshore institutions tend to require you to maintain a high minimum balance, but because there are so many now operating, they are having to now limit their deposit requirements, explains Vydelingum.
And offshore savers have lost out in comparison to onshore savers in the past. When Icelandic bank Kaupthing bought UK banking group Singer and Friedlander in 2005 and later the offshore arm of the Derbyshire Building Society, based in the Isle of Man, in 2007, savers effectively became customers of Icelandic sister banks KSFUK and KSFIOM, respectively.
However, in 2008, there was a run on a number of Icelandic banks, which could not service the withdrawals and collapsed. Savers affected in the UK with deposits in KSFUK received full compensation and an assurance from the UK government that their money was safe. But the offshore Isle of Man savers, whose money was held by KSFIOM, were “lucky” if they were repaid the £50,000 (about Dh260,000) from the depositors’ compensation scheme, says Vydelingum. Many lost a significant portion of their life savings as a result of the bank’s collapse, he adds.
“Although [what happened to the offshore savers in Isle of Man during the crisis] is a rarity, it highlights why researching the creditworthiness of a bank and
a jurisdiction is worthwhile before depositing funds either onshore or offshore,” explains Vydelingum.
So how do you select what jurisdiction and bank to trust with your savings? The ease of opening an account is an important consideration. Some banks, including HSBC Expat, have representative offices in the UAE but it is possible to open offshore accounts online or over the phone. All you have to do is send scanned copies of documents such as your passport, visa and tenancy contract.
“Choose a convenient location or time zone so it is easy to communicate with your bank,” says Bhambri. “While there are many offshore financial centres around the world, Singapore is a hub for offshore banking in Asia, and Jersey and Switzerland in Europe.
“Jurisdiction is also a key factor. Consider the estate laws and inheritance matters. Always compare the key terms for account opening and maintenance among a few banks — especially with the market leader — to avoid getting stuck and losing money.”
It is also important to consider the fees for having the account and whether you get charged if the minimum balance is not maintained. Bonus rates should also be a consideration. “The rates [used to be the first consideration] but now it’s more of a case of how easy it is to get money there” says Vydelingum. “What does it cost to transfer money to the Cayman Islands versus the Isle of Man or Jersey. Secondly, how much does it actually cost me to get my money out?”
How to open an offshore account
1. There are some offshore banks with representative offices in the UAE, including HSBC Expat, but it’s also possible to open an account online. Some banks require you call them first.
2. All banks will need you to send documents such as your passport, visa page, proof of earnings and address.
3. You may be asked to provide additional verification documents such as a financial reference from your current bank to help prevent money laundering.
4. You will have to choose the currency you want for your account, which could be multi-currency.