As an expat, it’s important to find ways to save money for your future and protect your assets both in your new country and native territory. Indeed, if your legal protections as an expat were removed overnight, the local government changed its rules on expats or your state pension was withdrawn, you could be left without enough money to get by, and be forced to return to your native country or to employment. Having a back-up in place is always sensible.
Many expats, whether European, British or American, can benefit from using an offshore savings account to protect their money and gain interest, without being taxed. Below, we’ve put together some of the biggest benefits of offshore savings accounts as an expat…
One of the best ways to get a good interest rate on your savings is to open a bank account in another country. In the United Kingdom, for example, the average interest rate on a savings account is 1.18% and in the United Arab Emirates 1.5% p.a., but choosing an offshore bank account can grant access to interest rates as high as 2 or 3%. Although this may not sound much, depositing funds overseas can allow your funds to mature and increase your returns.
Many countries do not offer the same levels of financial protection as they do in your home country. In the United Kingdom, for example, the Financial Services Compensation Scheme offers consumers protection on up to £85,000 worth of savings. This protection is applied to each financial institution - so if you have a bank account with NatWest and another with Barclays, you’ll have up to £170,000 worth of protection. If the bank fails or closes, you’d be able to retrieve your funds from the Financial Services Compensation Scheme within a week, which offers savers peace of mind and protects them against corrupt/collapsed banks.
In most other countries, however, savings protection schemes are not in place, which means that you could lose your money. By depositing funds in an offshore bank, you’ll place money into a regulated and transparent jurisdiction and protect your wealth from such threats.
Most offshore current and savings accounts allow customers to deposit money in more than one currency, including Euros, US Dollars, GBP, and United Arab Emirates dirham, which is great if have savings in multiple currencies. Not only does this protect your savings from both your home and new country, but it means you do not have to worry about exchange rates. GBP savings can be kept for when you’re in the UK, and dirham for when you’re in the UAE.
Depending on your country of residence, there can be major tax advantages to opening and saving in an offshore bank account, so it’s worth looking into. Remember that the UAE has no federal income tax and does not tax your interest, although if you’re resident in another country, like the United Kingdom, you may be required to pay tax on any earned interest. HM Revenue & Customs asks UK expats to declare any interest or earnings if they live in the UK for more than 183 days a year - UK expats with permanent UAE residency need not worry.
If you’re an expat living in the United Kingdom, however, then you’ll be liable for tax on any interest earned on offshore savings accounts. However, there is often a long delay between earning interest on your savings and paying tax. For example, if you earn interest in May 2019, you can hold on to interest for up to 20 months before taxes are due to HMRC.
As always, it’s recommended that you work with a local banking expert or accountant, who can offer the best solution for your individual circumstances, and advise on how to best distribute your savings and assets for maximum returns and minimum taxation.
If you like to travel as an expat, then having one bank account where you can access funds, wherever you are in the world, is another significant benefit. Most offshore banks issue VISA or MasterCard cards, which are globally recognised and can be used to purchase goods and services in most developed nations. What’s more, offshore banks offer mobile banking apps, so you can monitor the status of your assets, interest, and transactions wherever you are.
Although you’ll likely open a multi-currency offshore savings account as standard, the good news is that you can transfer money between currencies for a small fee. What’s more, many offshore savings banks offer highly competitive foreign exchange rates compared to a typical bank or provider, so expats with financial obligations in other countries may benefit from this cheaper exchange rate to maximise their assets and reduce exchange and conversion fees.
At Money Saving Expat, we recommend holding your savings in native and local currencies to reduce costs and ensure easy access, should funds be required quickly in an emergency.
Offshore banks allow clients to choose from a range of investments, and the process of investing is usually straightforward, requiring little to no involvement. By investing your funds into an offshore savings account, you can quickly develop an investment portfolio that makes the most of your assets, reducing the level of risk and helping you generate healthy returns.
As always, weigh up the opportunity costs of investing your funds (for example, would you be better off setting up a business in the UAE, or building an investment portfolio of low-cost index funds?), and conduct your own research to determine the risk before investing assets.
Opening an offshore bank account as an expat is a safe and legal way to protect your assets and reduce the level of risk on your money. However, you should always consult with a financial adviser before opening an offshore bank account to get the best rates and returns.
Remember to check back to the Money Saving Expat blog regularly for more free and impartial financial advice for expats living in the United Arab Emirates and around the world.
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