Banking Guide Blog

How safe are offshore accounts?

Wed, 02 Apr 2008 14:35:19 BST

With the worldwide credit crunch making financial institutions desperate to attract our investment, savers are being lured by offers of high interest rates. This applies, not only to the familiar high street banks and building societies, but even more so to offshore accounts. Indeed Scarborough Channel Islands and Kaupthing, Singer and Friedlander on the Isle of Man are offering generous interest rates on their accounts. Admittedly you have to deposit a minimum of £5,000 with the Scarborough and £10,000 with Kaupthing Singer and Friedlander but these rates are not to be sniffed at.

Many of us have the perception that offshore accounts are either for the mega rich or for decidedly shady investors. However, with over three million of us in the UK having deposited £180 billion this is beginning to seem unlikely. It’s all very well getting a good return on our money but just how safe are these accounts?

If a difficulty of Northern Rock proportions were to arise on an offshore account, could we be confident that our hard earned cash was secure, or would we be advised to have an open air ticket to Jersey at the ready at all times? With many of the offshore accounts requiring a minimum deposit of £25,000 there is a lot more at stake than in the average Northern Rock account.

In the UK the Financial Services Compensation Scheme (FSCS) guarantees the first £35,000 of your savings with ‘’’any institution’’’ (not "per account"). Prior to the Northern Rock crisis, the scheme was limited to the first £2,000 and then restricted to 90% of the next £33,000. The bad news is that there is absolutely no depositor protection in Jersey or Guernsey.

Although the latter has passed enabling legislation, there is no scheme in existence as yet. The Isle of Man is probably the only “true” offshore jurisdiction with a protection scheme, although it is far more limited than in the UK. Under the Banking Business (Compensation of Depositors) Regulation 1991, only 75% of the first £20,000 is covered, meaning that no matter how huge your bank balance is, if things go pear shaped you are only guaranteed to get £15,000 back. Unlike the UK though, this protection extends to foreign currency deposits and not just to sterling.

Although it is highly unlikely that you are going to come unstuck, the Northern Rock problem has made us all that bit more aware that things can go wrong. It is therefore well worth doing your homework before joining the ranks of the offshore investors. Check the credit rating of the bank to whom you are about to entrust your savings and also see whether perhaps you would be covered by the UK parent company of any offshore subsidiary. For instance, Abbey National Offshore has branches in Hong Kong and Dubai, and although deposits are not covered by the FSCS they are guaranteed by Abbey National PLC.

For an offshore service provider’s directory see here. Full details of investor protection for various offshore accounts is given in a user friendly table.

Sharp rise in internet banking for the over 55s

Thu, 13 Dec 2007 12:21:09 GMT

Internet banking has proved phenomenally popular since its introduction. What have been most surprising, however, are the benefits to the over 55s. Indeed, it has been revealed that over 3.6 billion people over the age of 55 have started online banking since 2006.

Despite the conventional view that the elderly tend to be the one of the most technophobic groups, they are now becoming more confident about using the internet. In fact, recent studies have shown that this age group now makes up almost 30% of all net users. It is clear that internet banking is convenient for them, especially for those with limited mobility or more free time.

The results come from the The Association of Payment Clearing Services (Apacs), which has said that between the years 2001 and 2006, the number of people in this age group who used internet banking shot up dramatically by 350% - much more than the 175% total rise in adults using Internet banking. Though young people still generally dominate the internet banking scene, the majority of new internet bankers are the elderly due to the ease in which they can operate their accounts.

As Sarah Quinn from Apacs said: "As a group they have come to embrace the ease and efficiency that online banking offers." Similarly, Nick Staib, an e-marketing manager at HSBC, has said that elderly people originally only started using the internet to contact family and send email, but now they are growing more confident with the easy systems offered by internet banking services.

Apacs has also noted that the increase in internet banking has had adverse effects on telephone banking. Even though around 16 million people still use the phone to manage some of their banking, there has been a drop of about one million since online banking was introduced. It is easy to see why: internet banking is much more convenient, costs less and displays account information in a way that is practically impossible to get using a phone.

It must be noted, however, that online banking also carries a much higher risk of fraud. People who are new to it must make sure their accounts are secure, for example by never storing passwords on the computer and learning how to spot scam emails. It has been shown that, although older people are a lot more wary when using the internet and likely to read more information before carrying out any action, they are less technologically aware than younger users and are therefore at a higher risk.

How to take care of your finances when moving abroad

Fri, 07 Dec 2007 02:23:52 GMT

Moving abroad can be stressful enough without having to think about how you will manage or replace your bank account, so it is important to know a few things beforehand to make the financial move a little easier when the physical move happens.

If you plan to stay in your chosen country permanently or for quite some time, it is important to open a bank account in your new country. This will enable you to access your money easily without having to rely on internet banking. It will also be the most convenient way of receiving new wages or paying bills for which using any other system would be much more difficult.

Opening a new local account is also one of the best ways of guaranteeing you don't lose any money due to a volatile exchange rate. For example, suppose you are moving to a European country, it is strongly urged that you transfer all your assets and savings into a euro-denominated account. Otherwise, any daily interest you acquire can be wiped out because of the exchange rate which flits about all the time. Even if you find that the bank account in your new country gives less interest, chances are it will still be more than what is left after you try and rely on funds from home.

Also, you can take advantage of a special currency exchange rate if you end up transferring regular amounts of money from British bank accounts (such as pensions), so make sure you look into them to cut down any excess transfer charges you may incur. For example, the popular foreign exchange specialist HIFX allows you to fix a singular exchange rate for up to 2 years in order to make the process easier and more controlled. They also claim to give better exchange rates than your usual bank.

For those who are only moving for a short period of time, it is strongly advised that you set up internet banking, as you will not be able to access a local branch quickly and you will need to keep track of your income and expenditure at all times.

Bank accounts aside, there are also other things to consider. For example, if you normally get a pension, you should look into how much of a difference moving abroad will make - usually there should be no problem as most people are eligible to claim their UK state pension if they move abroad to anywhere within the European Union.

A potentially bigger issue you may face is the tax regulations in your new country. Taxation of expats can be a complex issue. You will usually be required to carry on paying UK taxes as long as you are classified as a resident and this will be charged if you spend over 183 days in the country, or your visits average 91 days or more a year over 4 years. If you choose to become a non-resident to avoid tax issues, it is not so simple as you will then have to pay taxes in your new country.

It is important to make sure that you have extra money on hand for unanticipated costs, especially while you are still getting used to the new laws and services. Pay a visit to your financial advisor before leaving and explain what you are planning; they should be able to answer questions you may have and will know first hand what your financial situation is and will be able to advise you on what steps to take.

SMS alerts for Lloyds TSB customers who overspend

Fri, 09 Nov 2007 08:12:05 GMT

The Office of Fair Trading announced that banks are still making billions from unauthorised overdraft fees. But in a move which may surprise cynics, LloydsTSB has launched a scheme to help customers avoid going into the red, and therefore steer clear of associated penalty charges.

The bank’s new SMS alerts inform account holders if they are about to go overdrawn or have exceeded their agreed limit, giving them the opportunity to curb their spending or to top up their account. With financial fraud on the increase, the alerts will also help customers keep tabs on their accounts, so that unauthorised spending can be identified promptly.

Customers should be aware that there are 2 different SMS alerts on offer:

Limit Alerts, which became available 1 October 2007. These texts let you know when you are within £50 of your account limit, and when you have gone over your account limit. Texts are received by 10am. The customer has until 3.30pm to pay money into the account in order to avoid overdraft fees. The texts are free for a 3 month introductory period, after which the service will cost £2.50/month for each account you have registered for alerts.
Balance Advice Alerts are sent once a week, giving details of the account balance and recent transactions. This service is completely free.

Customers can sign up for this experiment in mobile money management online or by calling 0845 3000 000. Instructions for those not registered for internet banking or wishing to register by text message can be found on the relevant section of the LloydsTSB website. Do bear in mind that although the text alerts could potentially save you money, the charge for the Limit Alerts service adds £30 a year to the cost of managing each account even if your account is never overdrawn. This could hardly be classed as free banking!

Cash machines to warn customers about overdrafts

Fri, 02 Nov 2007 14:59:01 GMT

A new incentive from HSBC means that ATMs across the country will soon show warnings to customers if a cash withdrawal will take them over their overdraft limit. This new measure, which is the first of its kind, came into force at the start of October across all of HSBC's 3500 cash machines. It is designed to prevent customers from unwittingly going over their limit and incurring unanticipated fees. Understandably, these warnings will only appear to HSBC customers as they are the only ones whose overdraft details are registered with HSBC.

The move will come as great news to many who have difficulty keeping a track of their balance and withdrawals. It also reassures customers as HSBC aims to make its fees and charges even more clear so that no customer is left in the dark about what is happening to their account. The issue is a serious one: HSBC charges £25 for simply going £25 over the overdraft limit, and any withdrawal under this amount (but over £10) incurs a charge of the same amount as the withdrawal.

A common system which is already in place across 95% of HSBC's cash machines is that of being able to check your balance before you withdraw. However, the majority of customers do not take advantage of this, making this new scheme particularly useful for them. As Joe Garner of HSBC says: "We believe that alerting customers at this point will enable them to make an informed choice about whether to proceed."

Banks such as HSBC have long been attacked over the highly controversial overdraft charges with thousands of customers attempting to claim a refund. Indeed HSBC has revealed that over £120 million has been reimbursed over the first half of this year alone. It makes sense then that HSBC are trying their best to resolve the issue by properly alerting customers to all charges. Now no customer will be able to use ignorance as an excuse.

Furthermore, the bank also explains that there will never be a charge if the unauthorised withdrawal is up to £10, if it is the first time in 6 months that a breach has occurred, or if extra money is paid into the account by the end of the day to make up for the withdrawal. HSBC also insists that all of its customers are given at least 14 days notice before any fees are taken from their accounts and they will never be charged more than the maximum by which they are overdrawn during the month. With all these conditions in place, the majority of customers should have no problem even if they do end up going over their limit by accident.

All in all, HSBC is putting a positive measure in place to make it less likely for customers to end up being charged excess fees. Hopefully in the near future, all other banks will follow suit.

Public unperturbed by internet fraud

Tue, 16 Oct 2007 10:30:00 BST

Despite the fact that the papers are frequently full of horror stories about internet banking fraud, it seems from research carried out by Lloyds TSB, that we are as a nation unperturbed by the problem.

51% of us are unworried, even though 93% of us acknowledge that it is far from a “victimless” crime. 26% of us take the view that it’s “just one of those things”, 38% of us are complacent - safe in the knowledge that we will be reimbursed by our bank - and 48% of us are willing to take the risk because of the benefits in terms of convenience.

A mere 20% of people questioned feel that they really understand how to avoid becoming a victim, although 90% feel they have taken all possible steps to avoid a problem. Contrary to what one might think, it seems that the least-informed age group is the 18-25s, with only 15% feeling well-informed. The most confident are the over 65s with 29% feeling that they are on top of the problem. Men seem to feel better informed than women, with 26% claiming confidence compared to only 14% of women.

If you are one of those who feel they “could do better” the following advice may help:

Use strong passwords with a mix of letters and numbers such as “d0g” or “c4t” and change regularly.
Keep your details secret – do not divulge them to others, and do not write them down or store them on your PC.
Update your PC security regularly.
Check your accounts regularly in order to spot any suspicious activity.
Avoid using public computers for banking – if you have no alternative, make sure you are not being watched and always log off.

The following are common frauds perpetrated in the UK:

E-mail “phishing” scams – they may look genuine but they ask for personal details which should never be asked for by your bank.
Spoof websites – again, many look authentic but your bank will never ask for your password or memorable data.
E-mails that promise additional income – not only will you fail to receive the promised income but you could find yourself involved in illegal activity.
E-mails which state that you've won a lottery prize. They'll askf ro private details so that you can claim your "prize".
Virus hoax e-mails.
Suspicious phone calls – often asking to check the security number on your credit card.

Internet fraud is an issue no one can afford to ignore as it is spreading rapidly and appears to be taking in increasing numbers of UK victims every year.

It is clear that the banks are taking the time to prevent fraud but we as customers have to take responsibility and do our bit too. Sitting back and thinking it’s unavoidable is the best way of making life easy for the fraudsters and turning this into a self-fulfilling prophecy.