What’s the Difference Between Saving and Investing Offshore?

We happily rattle on about saving and investing offshore in the same sentence sometimes, and just like many others who write about money matters regularly, we pay scant regard for really differentiating between the two.  After all, if you squirrel your money away out of your spending reach you are effectively saving it and investing it.

However, there is a big difference between saving and investing – and when it comes to expats and offshore, it’s important to not only know the difference, but to make sure you get the balance right between the two.  This is for the sake of your money today, tomorrow and well into the future.

For some people saving onshore and investing offshore is the best option, for others there are suitable saving and investment products offshore.  It all depends on you and what you’re putting your money away for.  So, what’s the difference between saving and investing offshore?  In this report we’ll show you, and we’ll guide you so that you can then determine whether you need to save or invest offshore - or perhaps even neither!

Whilst many will probably want to argue with us, the main two differences between saving and investing in our opinion at Shelter Offshore are time and risk.

What Has Time Got to do With Saving or Investing Offshore?

Saving money, (as opposed to investing money), is considered more of a short-term solution and one that needs flexibility and accessibility built in.  Therefore, savings products are typically instant access or short ‘term accounts’ into which your money is only fixed for between 3 months and 2 years.  The interest you can earn on such accounts may be fixed – particularly if you either agree to a certain time commitment for holding your money in an account, or if you’re prepared to save a regular amount into the account on a monthly basis.

Many offshore and onshore providers seek to win new custom by offering attractive introductory interest rates on certain savings products for up to a year.  These accounts can be a great idea for savers who don’t mind revisiting their saving patterns each year, and re-jigging accounts that drop to rubbish rates of interest after the introductory period is over!  Alternatively, if you task your financial adviser with finding you the best savings account, you can also task them with meeting up for an annual review armed with brand new juicy savings products where appropriate.

Everyone should have a certain proportion of their wealth relatively close at hand in case of emergencies or spontaneous purchases.  We are often advised to have 3 months worth of our salary squirreled away somewhere not too far away for example – but the actual amount you should have in relatively easily accessible accounts depends on your own personal circumstances.  That said, everyone should really have money saved, (as opposed to invested), that they can get their hands on if needs be.

Some people prefer to have a certain amount of their savings onshore with them wherever they are in the world.  For others in a country where there are tax saving advantages or privacy or security benefits to hold money offshore, offshore savings accounts are both available and attractive.  Speak to your financial adviser about what’s available to suit you.

When it comes to time and offshore investments – time is less tangible!  However, realistically speaking, the longer you can commit your cash to an investment strategy, the greater the potential chance you have of making positive gains.  Investments can be anything from a pension scheme such as QROPS which are ideal for many Britons living, working and/or thinking of retiring abroad, to hedge funds or simple products linked to life insurance or directly to the stock market.  Because the underlying assets in which your money is invested are thought more volatile, (think of the fluctuations of the stock market over a year compared to the fluctuations in a nation’s interest rates), you can gain big or lose big in a short period of time – but if you can spread your investment out over a longer period, financial experts say that you stand a better chance of being an investment winner!

Offshore investments are therefore often more suitable for those who want the chance to make more out of their money, but who are willing to commit to tying up that cash for the long-term if needs be.

So, What Has Risk Got to do With Saving or Investing Offshore?

Simply put, straight savings schemes and accounts are usually far lower risk than any form of offshore or onshore investment.  Think about it – a savings account offering you 3% interest if you commit to saving into it regularly for a year and making only one withdrawal in that time is far less risky than an offshore investment where your money is in a fund that invests in emerging nation’s stock markets for example!  Okay, so each example was an extreme example of a saving or an investment product available – but hopefully you get the point.  Where there is lower potential risk, (i.e., in a simple savings scheme), there is generally lower potential return.  Where the risk is greater, (in an investment scheme), so the rewards are potentially higher.  Remember though, that with investments past performance is no indicator of future performance!

How to Strike the Right Balance

Your financial adviser will work with you to find out what your ‘risk profile’ is.  I.e., they will ask you questions about generic money matters to help them determine the balance of your portfolio.  If you’re a gung-ho type with more money than sense, (!), then perhaps your adviser will suggest some very risky but potentially very high returning investments to you.  On the other hand, if you’re of the old school and you like the thought of stuffing a mattress with your cash, your adviser may find you a safe and guaranteed savings account with a highly rated financial institution.

In other words, as you are an individual, your adviser will find out what you want to achieve from your money, how you want to achieve that, and with carefully chosen solutions that will be explained to you on the basis of their suitability for you, your adviser will help you achieve your offshore/onshore saving/investing goals.