News

Offshore Banking: How Safe Is Your Cash?

29 October 2008 By Bransom Bean

The recent global financial crisis has been a real eye-opener, especially for people with savings and investments in offshore accounts. Many people recently discovered their savings weren’t safe or, worse yet, have virtually disappeared. You could be one of them.

In the current global financial crisis, as the headlines announce the humbling of some of the world’s biggest banking names and the outright bankruptcy of others, not even Russian yacht owners are safe.

Yacht crew are certainly not immune to the fickle nature of financial fluctuations. But the predicament of much smaller savers with accounts offshore is less publicized as thousands of people, including yacht crew, are waking up to realize that protection for their offshore savings may not be the same as back home at your local bank.

“In twenty-two years as a financial advisor, I can’t recall when there has been such uncertainty and widespread panic,” says Steven Hawkins at Moore Stephens Financial Services Limited, which helps yacht crew with their financial and pension planning. “But it’s not just the big guys who are losing out.”

Offshore bank accounts and yacht crew go together as crewmembers can take advantage of the international nature of their employment and deposit money in offshore jurisdictions like the Cayman Islands, Bermuda, the Channel Islands and the Isle of Man, often in institutions with rock-solid reputations.

But protection for your bank deposits depends on where the bank is, not the bank’s name – and remember, even the biggest names have been in the news.

“Will State cover money in Irish banks abroad?” – The Irish Times

“Guernsey rules out state funds to help savers” – The Financial Times

“Thousands of depositors who held more than £800 million...with Kaupthing, Singer & Friedlander, the failed Icelandic-owned bank, are preparing to take legal action to get their money back.” –The Times (UK)

The first of the major government-orchestrated financial bailouts actually began more than a year ago when the British government effectively nationalized Northern Rock, preserving the savings of that institution and attracting deposits as a result. The UK also increased its depositors' protection plan.

Problems at Lehman Brothers, Freddie Mac and Fannie Mae caused the U.S. government to jump in and also increase the Federal Deposit Insurance Corp. (FDIC) deposit protection limit from $100,000 to $250,000.

The Irish government gave an unconditional guarantee on five of its largest banks ironically sucking so much cash into the country that there are now questions about the Irish government's ability to actually honor them.

But how these actions affect "offshore subsidiaries" of banks is the question. Remember places like Jersey are not part of the UK or the EU.

Neither Jersey nor Guernsey currently have any "Depositor Compensation Scheme," while the Isle of Man does. So, savers with life savings at Icelandic Bank Landsbanki, Guernsey, reportedly were offered only 30 pence on the pound.

The Isle of Man recently increased its individual depositor protection from £15,000 to £50,000, but corporate and trust deposits weren't dealt with in that amendment.

What does this all mean to crew? Get in touch with your financial advisors. If you don't have one, get one.

Keep close tabs on your financial accounts and pay attention to changes in the global financial markets that may affect your savings.

Don't rush headlong into drastic changes to your savings and investment portfolio, but be wise as the market volatility continues. It will eventually settle, but when it does, you want to be on the right side of the equation, holding onto most, if not all, of your savings and investments.

So until the dust settles, Hawkins has a few points of advice:

• Know what protection and how much is offered where you deposit your money
• Spread your risk
• Consider carefully whether you should voluntarily enter the U.S., UK or Irish on-shore tax system by moving your offshore deposits on shore
• Don’t be attracted by incredibly high "headline interest rates" that seem to be too good to be true…high interest usually comes with high risk as the savers at Kaupthing have just learned!
• If in any doubt about what to do…take advice from a certified financial planner.

The money you work hard to earn while working in the superyacht industry is not guaranteed, even if you place them in supposedly reputable financial institutions. As people all over the world are learning during the recent global financial crisis, nothing is truly secure, so it's best to always keep an eye on your finances, especially when you're working far from home.

Are you concerned about the safety of your money? Do you have any suggestions for financial solutions especially for crew?