Getting back to basics: how do expats begin managing their money when they move abroad, and what are their options. What’s the difference between an offshore and an international bank account and where do offshore savings and investments come in to play?
It seems to me that until you’ve lived abroad for quite some time and met many other expats and learned from them, or unless you work in a financial services facing business abroad, most expatriates don’t learn about their realoffshore options for a long time. This is a genuine shame because it means that expatriates are missing out on the myriad benefits available to those who can legitimately bank, save and invest offshore.
As a writer constantly commissioned to cover issues related to the offshore financial industry, I could run the risk of becoming blasé about the benefits and advantages of ‘going offshore’ if it weren’t for the one thing that keeps my feet firmly on the ground. And that one thing is the reader enquiries I receive every single day from those who really don’t know where to begin, and who aren’t sure whether what they’re reading about is really applicable to them.
It’s all very well for offshore banks and international financial services providers to pitch their marketing material at those who are already sold on the concept of investing in a different jurisdiction, but what about those who are beginning from the position that they’re not even sure whether all expats need an offshore bank account? A reader asked me today whether they needed such an account now that they’re working overseas, and it’s a totally valid question that needs a proper answer. So, if you’re new to the offshore world of banking, saving and investing, read on to find a way in to what can seem a confusing business.
Do Expats Need an Offshore Bank Account?
There is a difference between an offshore and an international bank account as far as I am concerned. Bank accounts that can provide transaction privacy and confidentiality to the account holder should reserve the right to be called offshore bank accounts. Such accounts are usually owned by a company and/or trust structure, and come with a fee attached for establishment and on-going management every year.
Most expats are not looking for such a solution. Most expats want a personal account that they can utilise now that they’re living abroad. Therefore in my humble opinion, such accounts should be referred to as international accounts rather than offshore accounts.
So, according to my terms as defined above – no, most expats don’t actually want or need an offshore bank account, most expats want an international account!
So…Do Expats Need an International Bank Account?
An international account, such as those offered by HSBC, Barclays, Lloyds TSB and so on, are designed to be of maximum flexibility and use to an expatriate who needs access to ATMs abroad, who needs to set up direct debits/standing order type payments to institutions and individuals in different locations in the world, and who perhaps earn their money in one currency and withdraw it in another.
These accounts can be exceptionally useful to some expats. However, they are not an account you should necessarily favour if you want a) the secrecy some people associate with a bank account in another jurisdiction or b)you hold a lot of money on account on which you could potentially be earning interest. What’s more, if your banking needs are straight forward, you may not even need an international account.
Even the ‘best’ international personal accounts offer ridiculously low rates of interest on balances – therefore, if you hold a lot of money on account you’re probably not going to be advised to put that money in an international account.
Some of the better banks can offer you a structure whereby you have an international account for your day-to-day transactions, and this is linked to a savings account where money deposited can earn some interest. However, you may actually get a better rate of interest on a dedicated term-account for example, or from an offshore bond, or an offshore investment product…
And this is where it can get unnecessarily confusing for expatriates.
Think of it like this if it helps…
In the UK for example, most people have a current account and they do all of their main banking through this account. Their salary goes into it, their bills go out of it.
Ideally they then have ‘other’ money saved or invested in an ISA, a bond, a dedicated savings account or whatever. They perhaps make annual deposits from excess wealth left in their current account, or if they earn a bonus they may put the balance into an investment or savings policy.
Well, exactly the same methods of approach can work for an expatriate – but as soon as you throw the word ‘offshore’ into the mix some people become distinctly uncomfortable.
How an Expatriate Could Potentially Manage Their Banking and Savings Requirements
An expat can potentially, (if they are best advised to do so by an independent professional for example), bank day-to-day in an international personal, current account. They can receive their wages into that account, pay their mortgage back in the UK from that account, pay their international credit card and their rent in their new nation all from the same account.
They can have 24 hour access, (no matter what their time zone), to their money thanks to the international nature of their account.
At the same time, any money they have already saved onshore and any future lump sum or regular amounts they want to earn interest on can be saved or invested in a range of products, accounts and solutions to suit everything from their risk profile, the term they wish to invest for, their tax status and so on.
An expat does not therefore have to put all of their money into one international account! It doesn’t make sense to do so for the vast majority of expats either.
This means that yes, an expat does have to change their mindset when it comes to the management of ALL of their money and each of their financial dilemmas…but it doesn’t have to be difficult.
If you separate out your thinking when it comes to your banking and your savings you will find the offshore world much easier to understand.
1) Determine whether you need the massive flexibility an international bank account can offer you, or whether you can continue to manage your day-to-day banking from your old onshore current account…
2) You can then slowly but surely turn your attention to making the most of your money offshore. By this I mean you can look at how you as an individual can benefit from going offshore. Are there ways you can a) save tax, b) get better returns, c) have access to more flexible savings accounts or investment products offshore?
In other words you do not need to find an immediate solution in the form of ‘an offshore bank account’ to throw all your money into now that you are living abroad. Instead you need to find a banking solution and a savings path.
More About Making the Most of Your Money Offshore…
As an expat you can almost always potentially benefit your wealth by going offshore. (NOTE: how and why you can potentially benefit is dependent on you and your unique financial and taxation position. Determining how and why you as an individual can potentially benefit is something to work out with an independent, qualified and reputable wealth adviser. This article does not constitute advice.)
Offshore saving and investing is different to offshore or international banking. The former is about making the most of your money and the latter is about the day-to-day management of your financial affairs and liabilities. To make the most of your money you will need to look at the products and solutions available that will help you save and invest excess wealth in the most tax efficient, high returning manner as possible.
If you work with a reputable financial or wealth adviser who understand expats needs and who is fully au fait with the offshore financial marketplace, you can sort out your short, medium and long-term money management and wealth advancement needs.
To Conclude
Those seeking a secure, private and confidential offshore solution for their money may benefit from an offshore bank account that forms part of an offshore company/trust structure.
Expats who need very flexible banking now that they are living and working abroad may benefit from an international bank account.
Anyone living abroad who wants to make the most of their money in terms of its potential growth should explore the offshore savings and investment products available and suitable to their individual needs and taxation position. They should consult a reputable, regulated, qualified and experienced offshore wealth adviser specialising in assisting expats if they want qualified advice.
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About the Author
Having more than 19 years experience in analyzing equities and investment instruments, Justin Lee has spoken at numerous industry events in Hong Kong, as well as the US, Middle East and Australia. Mr Lee has often contributed to print media publications including Business Week and Fortune Magazine, and has appeared on television programs such as Bloomberg and The Nightly Business Report. Currently Managing Partner & Investment Analyst at LeeLee Byers.