Saturday 20 January 2018

Overseas savings accounts

While the opportunities and investments on offer are endless, financial security is not guaranteed, writes John Cradden

OF all the dinner party debates you could have about money at the moment, there can hardly be any more polarising than the question of whether it's unpatriotic to take your spare cash out of Irish banks and stash it in an overseas account.

After all, the proponents say, our banks desperately need our cash, and we need them to survive and start lending to consumers and businesses again.

Our money is still protected by the bank guarantee, we have our bailout funds with a newly lowered interest rate, and we're on track in terms of repaying our debts.

Nonsense, say those on the opposing side. Patriotism is a mug's game. We can't trust the Government nor our banks with our money, given the mess they created. Why should taxpayers be left with the tab to pay? Let the banks fail.

Of course, the strength of the Government-can't-be-trusted argument has become a little weaker since we elected a new Government earlier this year.

It's worth bearing in mind that from an incentive point of view, Irish banks are upping the ante.

"Banks trading in Ireland are paying extraordinary interest rates at the moment," says Simon Moynihan of price comparison website

"But despite rates of 4pc and higher, money is still leaving the country because Irish people are looking for more than just high interest rates for their savings. They want security, too."

Mr Moynihan says that while savers will be hard pressed to match the interest rates at home, "there are all sorts of accounts, investments and opportunities out there".

"Wasn't the purpose of the single currency to make it easier to take advantage of goods and services regardless of borders?"

If we assume the attitude that it's your money and yours to do as you please, does putting your money into an overseas account make any sense from a financial security point of view?

"That depends on what institution you move it to, how sound its balance sheet is and whether you trust the rating that the various agencies have awarded to it," says independent financial adviser Bob Quinn of Kildare-based firm Money Advisor.

"The 'too big to fail' banks have indeed failed in the past, so it is a little naive to think this won't happen again."

Banks up North

A common and reasonably practical alternative to an overseas account is to travel across the Border and open a sterling account in a bank branch in Northern Ireland.

You would normally need to apply in person with some banks to open a sterling savings account -- such as the Bank of Ireland, First Trust, Northern Bank or Ulster Bank -- but you will need the usual proof of identity and your address in the Republic of Ireland.

It may be possible to open an account over the phone or online without having to travel across the border, but you'll need to confirm this with the relevant institution.

Interest rates on sterling savings accounts would struggle to beat those of the Irish banks.

Nationwide UK, which has a ROI division, is offering the highest easy-access interest rate of 3.12pc, according to UK price comparison sites, while the best one-year fixed rates range between 3-3.4pc.

In addition, Mr Quinn warns that if you move to an institution in a non-euro currency jurisdiction, you run the risk of currency fluctuations and you may be hammered on conversion charges, he says.

"Let's set one thing clear. If your bank or local post office brag about 0pc commission on foreign exchange transactions, know then that they are building into their fee the actual rate they quote you.

"As soon as you decide to convert your euro into another currency, and back again at some point, you will have paid a small fortune for the luxury," says Mr Quinn.

Open a euro account

One obvious option to mitigate the issue of currency fluctuations and conversion charges is to open a euro account in another eurozone country.

However, most banks outside of Ireland make it difficult to open bank accounts.

One exception, according to several posters to the forum, is Keytrade in Belgium, which is said to welcome Irish depositors. Other institutions suggested include Britline and Barclays in France, and BNP Paribas in Germany.

But, as if to highlight the risk to all EU financial institutions in the current EU debt crisis, it has recently been pointed out that Keytrade (as well as Britline) is owned by the Credit Agricole group in France.

Credit Agricole is one of France's two largest banks, which were both recently downgraded by credit ratings firm Moody's.

Regulatory regimes

Given that many savers are more worried about institutional security than the interest rates they can earn, it may be of some comfort that money resting in some overseas accounts will be well-protected by deposit protection schemes operating there. The EU now requires all member states to put in place schemes protecting deposits for amounts up to €100,000. Investec Bank, Leeds Building Society, Nationwide UK and Northern Rock are covered by the British scheme.

This would pay compensation up to a limit of £85,000 (€97,000) per person, per institution.

Rabodirect is covered by the Dutch scheme (€100,000), while National Irish Bank is covered by the Danish scheme (also €100,000).

However, Mr Quinn warns that the regulatory regimes in some other countries may not protect or compensate consumers as well as in Ireland, the UK or the EU at the moment.

In addition, tax on foreign deposit income from outside the EU is charged at your marginal or higher rate of tax rather than at the DIRT tax rate of 27pc for accounts within the EU.

Irish Independent Supplement

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