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BANK and OFFSHORE BANK
(Also called Multicurrency, Interbank, Offshore Reserve)
A bank account which holds money in foreign currencies,
e.g. US$, Euro €. With some you have a different cheque book for each
currency. With others you have one cheque book with which you can issue cheques
in any convertible currency. If the cheque clears through the UK (as opposed to
the foreign) banking system, it will take two weeks to a month to clear and it
may not be acceptable to an individual or company abroad or the person abroad
(and possibly you also) may have to pay extra charges to clear it.
If
you need to write occasional cheques in foreign currencies ask your bank for a
foreign currency bank draft (over the counter at Barclays for US$). Several of
these banks have have cash dispenser or debit cards
which operate in US$ or Euros €.
Who can invest Anyone over age 18.
How worthwhile Useful if you receive payments in foreign currency or need to send cheques abroad in foreign currencies now that the Eurocheque system has been abolished. Poor to fair value for taxpayers: some banks paying good interest in US$ are poor for Euros € and vice-versa. For larger amounts, consider Offshore Single Currency Fund, Offshore Bank Instant Access Account or Offshore Bank Notice Account which some banks offer in US$ and Euros €.
Minimum Usually US$ or € 5,000, 7,500 or 10,000 Other currencies may be more difficult to find. £2,500 and currency equivalent of £2,500 for 25 currencies at Charterhouse. Citibank US$ minimum £10,000.
Maximum None.
Suitable Lump sums.
Money back A few days. From cash machines with debit card from Cater Allen, Charles Schwab, Citibank, Barclays, Lloyds TSB (1.5% charge). You usually need a separate card and account for each currency.
Interest Variable. Depends on currency. None for Yen. ½% to 1.5% for Euro €. US$ nil to 1.5%. No interest while balance below minimum.
Interest paid Added quarterly. Monthly at Charterhouse.
Tax If account abroad, Isle of Man or Channel Islands: No tax deducted but interest liable to income tax and should be declared on a tax return. Basic taxpayers pay 20%; higher rate taxpayers 40%. See also new rules. If account at UK bank: 20% income tax is deducted from interest for UK residents. Non-taxpayers can reclaim the tax from the Inland Revenue. Higher rate taxpayers pay extra; basic taxpayers don't. Gains on exchange rate changes on withdrawal are liable to capital gains tax unless you spend the withdrawal, e.g. by paying a foreign currency credit card bill.
Fees to pay Check the charges before you invest. There can be fees for paying in foreign cheques if the bank is outside the juristriction
Passbook Statements quarterly. Monthly on request.
Children Unsuitable.
Risk Full value of original investment in the foreign currency returned on withdrawal but if the currency has fallen against the £ sterling there will be a loss. Cater Allen is owned by Abbey National. Isle of Man banks are covered by compensation scheme: 75% on the foreign currency equivalent of the first £20,000 for each investor. UK banks are covered by a compensation schemefor 90% on the foreign currency equivalent of the first £20,000 for each investor but only for EU currencies (i.e. not US$, Yen, A$ etc). No compensation scheme in Guernsey or Jersey. US banks are covered by a compensation scheme of up to US$100,000 for each person named on the account.
How to invest Phone for details or check out the company's web site. To check on the currency rates before you invest, click here. Beware of large spreads between buying and selling prices, especially when dealing during currency turbulance. Phone numbers and a monthly survey of rates for US$ and € accounts can be found in Money£acts.
Where from The US government does not allow $ denominated accounts in a bank branch outside the US to have cheques so all US$ cheque accounts must be from a US based bank. As a result most accounts in the UK or offshore islands only offer debit cards. One alternative for US$ is to use Charles Schwab as part of a US$ stockbroking service. For Euros, try Britline at the Credit Agricole du Calvados which has an English speaking staff.
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Last updated 11 August 2005