Offshore savers look unsurprisingly look for the best returns on their money and may not consider how safe their cash is while on deposit in the bank.
It’s easy to assume that the same money protection rules apply to offshore savers as savers with money with British onshore banks – but in many cases they don’t.
The discrepancy is highlighted by the financial services regulator on the Isle of Man, which is reviewing compensation limits with a mind to upgrade to an £85,000 limit, while Jersey and Guernsey may also consider the same proposal as well.
In the UK, the Financial Services Compensation Scheme pays out up to £85,000 for each cash saver for money they have on account with each banking licence.
Compensation scheme limits
Other financial compensation schemes have varying limits:
- The European Union – 100,000 euros per banking licence
- Gibraltar – 100,000 euros per banking licence
- Guernsey – £50,000 per banking licence
- Isle of Man – £50,000 per banking licence
- Jersey – £50,000 per banking licence
For savers, the rule of thumb is not to put more than the compensation limit with any group of banks that come under the same licence.
This can drastically affect offshore savers.
Checking out the deals
Take the current 12-month fixed rate deal offered by Santander on the Isle of Man is 1.45% until April 1, 2015, for a £200,000 deposit.
As only £50,000 is protected by the Isle of Man compensation scheme, if some problem should beset Santander that leads to a run on the bank, a saver stands to lose £150,000.
Putting £50,000 on deposit would see the rate drop to 1.40%.
Don’t forget compensation limits apply to the total amount held with each bank, but each bank on the same licence – and that licence may be shared with other brands.
For instance, an onshore saver with £170,000 on account with the Halifax would only have the first £85,000 protected.
But if the saver had £170,000 split equally between Lloyds Bank, the Halifax and Bank of Scotland, the whole amount would be protected as the companies are on two different banking licences even though Lloyds owns the other two banks.
The rules also specify the amount protected is per account holder per banking licence – which means the thresholds double up for joint account holders.