The offshore banking sector is a competitive market place and banks set out their stalls in a variety of eye-catching ways. As a result, there is little uniformity between them in terms of which services incur charges and what those charges might be. An acceptable fee to one segment of their customer base might seem like a rip-off to another. They justify their charges on the basis that they regularly deal in cross-border transactions utilising different currencies. Many of the charges imposed are, they protest, a reflection of the fees they have to pay other banks in the chain of command.
Of course, the usual problem with smallish one-off fees is their nasty habit of adding up to a hefty monthly bill. The three charges most commonly complained about by expatriates are those made for cross-border transfers, credit card use and cheques issued in one country to be deposited in another.
Your job is to investigate the tariffs affecting you directly and compare like-for-like between a handful of competitors. Do this before you commit yourself to opening an account. Familiarise yourself at the outset with the tariffs levied for every type of instruction or request you are likely to make - remember these might include quite minor items, such as sending a fax or even an email confirming a payment has gone through.
Some offshore banks package their services within a club-style account - you open an account, they make you a member of their ‘club’. These accounts will have an annual standing charge. The only way to judge the worth of the product is to carefully assess the bells and whistles it offers (for example, details on tax liabilities, advice on savings schemes and investments, discounts on health and travel insurance, information about language tuition and local schools, and travel discounts) and calculate whether these offset other costs the account might incur. Be aware that the bank will make additional charges on top of the annual standing fee depending on the services you use.
Debit, credit and charge cards
The plastic revolution has provided a vital tool for expatriates as they travel the globe. Raising cash in local currencies, shopping and generally managing money can all be achieved with consummate ease by waving a slither of plastic. These days it's a case of ‘have cards, will travel’.
There are three types of cards - debit, credit and charge. With a debit card attached to an offshore bank account, money spent or withdrawn is deducted instantly. A debit card is your key to accessing money in any currency anywhere in the world 24 hours a day, seven days a week. There are hundreds of thousands of cashpoint machines around the world, and the number is increasing year on year.
A credit card gives you a grace period, usually one month, before payment is due. However, once the due date for settling bills has passed, interest on any outstanding balance will be charged. And remember, credit card interest rates are high. This is absolutely not the way to 'borrow' money.
Charge cards operate in a similar way to credit cards but the debt owing must be paid off in full on a monthly basis.
Offshore banks differ widely in what they charge for their cards. It pays to shop around. Before you take on any card be sure you understand at the outset the precise details of the payback arrangement. There are no regularly updated independent comparisons between offshore card deals. You'll have to do your own research using the guidance below.
With both credit and charge cards, where the balances are reconciled at a later date, it is important to be aware of inherent fees. These will usually include an annual fee for the issue of the card. In some cases, expat customers can expect a fee waiver, but don't count on it. Most banks charge a joining fee and make an annual charge thereafter. Take time to compare offers. Note any interest free period, the rate of interest charged, the foreign exchange loading (that's the percentage added on by the bank for arranging an exchange from one currency into another), and any penalties likely to be incurred for late payment or exceeding the credit limit.
The annual percentage rate, APR, takes into account the interest on the card and all the other charges. Banks must inform cardholders of the APR and this information can be used to compare offers - the lower the APR, the better the deal. Some card providers offer deals according to the proportion of payback you make each month. If you want to take advantage of these offers, be realistic about payback. The penalties for borrowing beyond your credit limit are severe. This is a buyer's market, but remember to shop around - never assume you won't find a better deal than the one you're being offered.
Fantastic plastic - but at what price?
Accessing your money or making any kind of purchase overseas using a debit, credit or charge card is delightfully easy, but be careful; it’s an expensive business. As well as the annual fee, banks and credit card companies will charge you for every card transaction.
• Exchange-rate loading fees, sometimes called exchange rate administration fees or exchange rate adjustment charges, are likely to be added to all your overseas credit and debit card transactions.
• Credit card cash withdrawal fees will be charged by most companies.
• Some banks will also charge a 'transaction fee' every time a debit card purchase is made.
Expatriates who can predict their spending in a particular currency for a defined period of time should arrange for their chosen plastic to be denominated in the spending currency. For example, if you are an expat in the Eurozone, shop around for providers offering euro-denominated accounts complete with plastic.
Expats should also be aware of what's called dynamic currency conversion, a system used in many European countries and the US whereby a retailer converts purchases into sterling instead of using the local currency and then charges you a fee of up to 4% on top of the purchase price. Insist on paying in the local currency or use cash.
The other charge looming over credit card users is the rate of interest levied by the provider. Many card users do not understand that when they fail to clear the statement balance in full, future purchases don’t benefit from interest-free periods. Likewise, cash withdrawals from foreign ATMs may not benefit from an interest-free period, regardless of whether the full balance has been paid or not. In these cases, interest will be charged immediately on withdrawal.
There is one particular advantage to paying by credit card. Purchases are covered by Section 75 of the UK’s Consumer Credit Act both in the UK and overseas. This means that if any goods or services costing more than £100 and less than £30,000 are faulty, or not as they were described, you will be able to recover the cost, in full, from either the retailer or your credit card provider.