Saturday 1 October 2016

Want to open an overseas bank account? It's a bit harder than you might expect

John Cradden

Published 12/07/2015 | 02:30

OFFSHORE BANKING: Permanent TSB is now the only Irish bank with a presence on the Isle of Man
OFFSHORE BANKING: Permanent TSB is now the only Irish bank with a presence on the Isle of Man

The continuing speculation over Greece's possible exit from the Eurozone and the weakening effect this might have on the shared currency in the short-term, may once again be prompting some folks to consider setting up non-resident bank accounts in non-eurozone countries.

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Offshore banking has a bit of a dodgy image but, after years of controversy, demand for this type of banking seems to have fallen off a cliff. For instance, Permanent TSB is now the only Irish bank with a presence on the Isle of Man after AIB shut up shop in 2012, followed the next year by Bank of Ireland, which cited the "industry-wide decline in demand for offshore banking" as the reason.

But if you're an expat or move bases frequently as part of your work, it is relatively straightforward to set up a bank account in a foreign country if you can present yourself in person with relevant proofs of ID.

Some banks will allow you to open an account without you being in the country. A number of UK banks, for instance, offer non-resident bank accounts, some of which you can set up remotely as long as you can send them the appropriate paperwork, while others will still insist on seeing you in person at a branch. If this proves a barrier, one obvious solution is a quick scoot up the road to a bank in Northern Ireland, such as Ulster Bank, Bank of Ireland and First Trust.

But if you are actively considering opening a non-euro account as part of a personal hedging strategy, you should probably think again, says David Quinn of personal finance advisors Investwise, who gets "consistent queries" about moving out of the euro.

"My own opinion is that making investment decisions around base currency is not 'hedging' as most think is the case, it is actually currency speculation.

"By moving deposits from euro to sterling, the investor is speculating that the euro will fall against sterling. Most professional investors and corporates try to hedge against this type of currency risk.

"It is extremely difficult to trade currencies and make gains, so I generally recommend my clients avoid currency speculation wherever possible and base their portfolios in their local currency."

If it was that easy to make money on currency trading, said Mr Quinn, there would be hundreds of currency funds, but there are only a handful.

"For example, a few people contacted me back in 2008 about moving to the Swiss Franc, and we know how badly they were burned."

Mr Quinn says there is a lack of understanding about how efficient currency markets are.

"The current sterling/euro rate is the market consensus given all available information, interest rates and capital flows. The information that is influencing Irish investors to move out of the euros, such as Greece's troubles or quantitative easing etc, is already priced into the rate."

Currency risk is "extremely hard to quantify or control," he said.

"Better to be very highly diversified in the current investment climate, and get paid for risk taken, either through a higher yield or higher long term returns from things like equities."

But what about moving your money to a bank in a 'safer' Eurozone country, like Germany? The implementation of SEPA (Single European Payments Area), which removes barriers to cross-border banking within eurozone countries, means that this should be a cinch to do - in theory.

For instance, DKB is an online bank (a subsidiary of state-owned Bayerische Landesbank) through which you can open an account without having to visit Germany. This might involve your Irish bank verifying your identity, but if you don't speak or write reasonably fluent German (so that you understand the terms and conditions of banking with them) they could refuse to work with you.

Indeed, despite SEPA, it's up to the banks in each EU country whether they are happy to allow non-residents to open bank accounts, particularly if you can't present yourself in person to a bank branch manager.

So even if you wanted to shop around for the best deposit interest rates possible, it's still not that straightforward. But in that regard you may not be missing much, according to Mr Quinn.

"Irish deposit rates are among the highest in Europe, and you have to go to other distressed banks to get higher rates," he said.

"I would be surprised if there are any accounts within the Eurozone that offer much higher rates than 1.3pc gross for simple lump sums."

Thanks to all the controversy surrounding secretive off-shore banking arrangements, the temptation not to declare these accounts to the Revenue is probably best avoided.

"Generally, individuals are aware of their responsibilities when opening foreign bank accounts," said a Revenue spokeswoman. "In addition to the obligation on the account holder to report the opening of such accounts, intermediaries that assist Irish residents in the opening of the accounts are obliged to make a return of all foreign bank accounts opened by the intermediary on behalf of Irish residents."

The Revenue has also established tax information exchange agreements with offshore havens like the Isle of Man, Jersey, Liechtenstein, Gibraltar, Cayman Islands and Guernsey, as well as double taxation agreements with 72 countries, including Switzerland.

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