UK Savings and Offshore Accounts

Summary: This article offers an overview of UK savings and offshore accounts - the pros, cons, benefits or otherwise of both onshore and offshore saving for UK residents.

Many UK savers and investors wonder whether they’d be better off placing their hard earned cash offshore to gain better rates of interest and to take advantage of any legally available tax breaks.  After the Bank of England cut interest rates last week UK savers are aware that onshore savings accounts could be even less attractive now than offshore alternatives.

This article offers an overview of UK savings and offshore accounts - the pros, cons, benefits or otherwise of both onshore and offshore saving for UK residents.

All UK residents and ordinary residents have an onshore tax free savings entitlement of up to £7,000 in each tax year.  This money has to be placed in a qualifying investment vehicle such as an ISA (individual savings account) but is a great way to make your savings grow faster without the burden of tax. 

Having a quick look around one can find many financial product providers offering a range of ISAs and the best returning and most popular ones currently seem to be offered by First Direct and the Halifax. 

First Direct’s Mini Cash e-ISA has an AER of 6.25% currently and the ISA Direct Saver from the Halifax has an AER of 5.15%.  Both have the added bonus of being instant access whereas many offshore accounts offering better rates of interest are notice accounts and early withdrawal, if even possible, can incur a financial penalty.  Furthermore you don’t have to invest the full £7,000 to benefit from decent rates of interest, whereas when it comes to offshore accounts you have to be investing significant sums to benefit from the best rates of interest otherwise onshore alternatives are often far better returning.

In terms of the best straight UK savings accounts - i.e., non-ISA accounts - into which any amount can be saved but that amount will not benefit from the government’s tax breaks, again First Direct look to be the best at the moment offering an AER of 5.2% on their e-Savings instant access accounts.  Often the more you save the better the interest rate and that goes for notice accounts as well.

In terms of onshore notice savings accounts available to UK residents, the best we found in terms of the interest AER is Nationwide Building Society 60 Day Direct which offers 4.40% AER on small deposits or the Chelsea Building Society Triple Guarantee which offers 5.40% on larger sums in the region of £10,000.

When it comes to offshore accounts it doesn’t pay to make small deposits.  You can only save money you’ve already paid tax on, you have to declare the amounts you place offshore and any income or gains you get from your offshore investment - and you will be taxed on these amounts even if they grow tax free in your offshore account. 

That said, if you have larger sums to save or you want access to anything other than plain vanilla offshore savings accounts you can benefit massively from better interest rates and access to far more interesting funds offshore.

But straight saving offshore - well, if you place £10,000 or more into a savings account you will attract better rates of interest, for example The Isle of Man based Derbyshire can offer you an AER of 5.2% on their 5 Year Manx Bond Issue 24 or the Alliance and Leister will pay the same on their International Deferred Interest Account.

Whether onshore or offshore is best for you and whether any of the above listed accounts are suitable for your circumstances is only something that you and your financial adviser can decide.  If you would like to speak to an advice team with experience in both offshore and onshore investing and saving please complete our advice form and an adviser will contact you.

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