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"For the past two years I've been enjoying the attractive interest rates offered by offshore branches of UK banks like Bradford & Bingley International, Bank of Scotland International, Alliance & Leicester International and Northern Rock Guernsey. A big advantage is the option of exchange of information which saves the administrative effort of UK tax repayment claims and gives you the interest in full as disposable income or for immediate reinvestment. (I'm a non-resident and declare income where I live). But if one of these banks collapses, what is the position for offshore savers?"
- via email
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Moira O'Neill, personal finance editor, replies: "The main drawback with offshore deposit accounts is that you don't have the same consumer protection as you do with UK-based accounts.
However, there may be some form of compensation available depending on where the banks are located. Most subsidiaries of UK banks are located in the Channel Islands or the Isle of Man. The Isle of Man has a depositor compensation scheme in place. But it's not as good as the UK's Financial Services Compensation Scheme. Deposits are protected up to 75 per cent of the first £20,000 per depositor and the scheme extends to the sterling equivalent of foreign currency deposits. The scheme was successfully operated in respect of the default of BCII which had a branch in the Isle of Man. The Isle of Man also has a Financial Ombudsman.
Although Jersey and Guernsey have good regulatory systems in place - many offshore centres don't - they have no compensation schemes and no financial services ombudsman schemes.
Bear in mind that the UK parent company will often guarantee your savings if its offshore subsidiary gets into trouble. Here's what Bradford & Bingley International says on its website: "Our share capital and reserves are in excess of £266m and you have additional reassurance that our parent, Bradford & Bingley plc, has given a legal undertaking that whilst we remain its subsidiary it will discharge any liabilities in the very unlikely event that we are unable to meet them ourselves." However, not all banks and building societies are this generous.
Savers should be wary of putting money in overseas jurisdictions with which the UK traditionally does not have banking links, unless they are taking specialist advice.
Read Moira's regular comment columns in the Investors Chronicle each week... or here
Send us your views using the form on the YourOpinion page.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
