Banking without borders
This article was first published in the 2nd quarter 2014 edition of Personal Finance magazine.
You might need a bank account in a foreign country for all sorts of reasons. As Gerrit Viljoen, financial planner at Ultima Financial Planners, says: “More and more South Africans have business interests and property offshore and require offshore banking services for the day-to-day running of these businesses. More people also have offshore investments and want the money paid out in the jurisdiction they invest in for holidays in those countries and beyond.”
Michael Nudbichler, Standard Bank’s head of offshore services, says it is important to preserve the value of your money by holding your funds in the foreign currency you require abroad.
“For example, there are nearly 40 000 African students studying in the United Kingdom and paying their school or university fees in sterling. An offshore account provides a secure store of wealth so that currency risk (the risk of the rand losing value against the foreign currency you will be using) is avoided,” Nudbichler says.
An offshore account also allows you to cut currency conversion costs out of your budget.
Warren Ingram, financial director of Galileo Capital, advises: “It helps if you don’t have to transact on your rand-based credit card. Your account needs to be paid in rands, and you’re often at the mercy of what banks charge you in foreign exchange fees. At least by having an offshore account, you have control over what you spend.”
You have more control over the movement of your investment funds, too, with fewer currency conversions and the ability to arrange transfers and conversions at times that suit you and the fluctuating exchange rate. While interest rates are close to zero in the United States, the UK and many countries in the European Union, South Africans are able to score by using periods of rand weakness to repatriate funds to earn a higher rate of interest.
Standard Bank spokesman Ross Linstrom says the bank has noticed a shift in the type of clients who are signing up for international bank accounts.
“In the past, wealth diversification was very much the driver. Today, clients need help managing their global mobility, whether they are travelling for business or leisure, receiving income from overseas or cross-border employment (for example, expats or those who consult for and receive income from overseas companies, or who own property that generates rental income overseas). These clients are more interested in being able to make frequent, low-cost, reliable international payments, access their money using their debit card and make quick, convenient foreign currency payments online,” Linstrom says.
But how do you go about opening an account? There are only two ways and – you’ve guessed it – neither of them is simple.
The first requires residence in a foreign country, and eligibility to open an ordinary bank account there. You can keep that account when you return to South Africa and use it when you are in that country or – to a very limited extent – long distance.
The second option is to join the small group of well-off South Africans who have access to offshore banking via the private banking facilities of the local banks.
Home away from home
A local account, opened during a period of residence in a foreign country, is by far the cheaper option and offers maximum convenience if you spend a lot of time in that country. Transaction costs may be lower than you are used to, too. In the UK, for example, routine banking, including the use of most ATMs, is free.
Even this everyday account has its challenges for the new or temporary resident. To prevent money laundering and ensure that people are who they say they are, countries have their own version of the Financial Intelligence Centre Act and banks require identification (such as a passport or driver’s licence) and documents that prove you have a regular income and a fixed address. Clearly, this is not a simple matter if you have just arrived and need a bank account before you can receive a regular income, or you are living with a friend, partner or relative and cannot produce a lease, mortgage agreement or utility bill in your name to demonstrate that you have a fixed address.
Many South Africans who have lived abroad will attest to the Catch-22 situation in which they have found themselves, and the anxious weeks or months they spent trying to resolve the problem.
However, once you have an account, you can keep it open when you return to South Africa and simply notify the bank of your change of address.
However, that might not be a complete answer to your banking needs. Transacting with a local bank from afar can be difficult, particularly if there is a language barrier. You can transfer funds via internet banking with ease, both within the country where your account is held and internationally, but moving money into investments, opening new accounts and changing your personal details invariably require you to present yourself at the branch. You are likely to be subject to irritating form letters that take no account of your foreign residency and to be offered contact numbers that can’t be called from outside the country.
A local account is best suited to people who regularly visit the country in which the account is held.
International account
If you are resident in South Africa and unable to open a local account in a foreign country, you have no option but to opt for private banking – if you meet the criteria. Exclusive private banks such as RMB (part of the FirstRand Group, which owns First National Bank) and Investec offer international banking to their “discerning” and “distinguished” clients, but the most accessible international transactional accounts are probably those offered by Absa, Nedbank, First National Bank and Standard Bank to their private banking clients.
Private banking is a premium service offered to the “high net worth” clients of the banks, measured by income and/or investment assets.
The banks’ criteria vary: for example, Standard Bank requires an income of R700 000 a year, whereas Nedbank’s bottom line is R1.5 million in earnings a year or investments to the value of R5 million.
The benefits of private banking range from being assigned a private banker or relationship manager to look after your financial affairs, to having access to financial advice and expertise abroad. All the private banking services offer offshore banking with various minimum requirements for deposits and balances.
Here it is important to clarify the term “offshore” banking. “Offshore” is a general term for anything located outside of the country of residence, but in banking terminology, “offshore” may refer to places that offer tax advantages: low-tax jurisdictions or “tax havens”, such as the Channel Island of Jersey, the Isle of Man, the Cayman Islands and Switzerland. As defined by the authoritative finance-education website Investopedia, these are countries that offer foreign individuals and businesses a stable place to invest their money with little or no tax liability.
Having qualified for private banking, you will have access to banking abroad, subject to certain minimum deposits and account balances. To qualify for an account in a low-tax jurisdiction, you are likely to need a higher income, a higher level of investable assets or both. Absa, for example, has various levels of private banking: Absa Private Banking, which includes the iBank account described on the next page, and Absa Wealth, which accepts clients with upwards of R7 million in investable assets.
Some banks use the term “expat” banking when they are referring to accounts held away from home, catering for people living and working in foreign countries. Expat accounts may be located offshore, or have access to offshore services.
Until last year, the British banks Lloyds TSB and HSBC offered expat banking to well-to-do South African residents, but both have withdrawn these services. Lloyds withdrew from South Africa completely after its international private banking business, based in Jersey, was bought out by a Swiss banking group, and HSBC closed its Premier expat banking service. HSBC, like Credit Suisse and Citibank, now focuses solely on investment banking for corporate and institutional clients.
The account details given below are not comprehensive, owing to the difficulty of getting matching information from the banks’ complex private banking divisions, but they will give you a good idea of the variety of options available and the minimum deposits and balances involved. These are services composed of various layers, to accommodate different levels of wealth and different needs in terms of transactional and investment banking, so be sure to ask about costs and minimum deposits/balances at each level: the private bank account, the global bank account and the offshore (low-tax jurisdiction) account.
Note: Bidvest Bank (which has no private banking division) offers the Foreign Currency Account, but this is not a transactional account. Instead, it offers a place to store your R4-million investment allowance (R8 million for a family) and R1-million annual discretionary allowance in one of four foreign currencies: US dollar, sterling, euro or Australian dollar. The funds earn interest in the chosen foreign currency, but it remains a South African-held and operated account. The minimum deposit is R25 000; the maximum is R4 million.
WHAT THE BANKS OFFER AND HOW YOU QUALIFY
Absa
Barclays iBank
To qualify for private banking with Absa, you need to have a gross income of at least R750 000 a year, or a loan portfolio of R2 million or more, or investments and savings of R1 million or more. Then, if you need facilities abroad for everyday international banking, Absa offers the iBank account at the Knightsbridge, London, branch of its parent bank, Barclays.
The iBank account is for day-to-day banking and is open to people living outside of the United Kingdom, such as South Africa, and earning income in the UK or elsewhere in the world. You have a choice of three currencies in which to operate the account – sterling, United States dollars or euros – giving you the advantage, in many cases, of being able to bank in the currency of your overseas income.
The minimum deposit to open an account is £5 000 (or currency equivalent) and that remains the minimum balance for as long as the account is operating. There is a charge of £7 a quarter if your average balance drops below the minimum threshold. There is a basic monthly service charge of £10, US$16.50, or E14.50.
The account offers online banking both locally and internationally, debit card services, quick and easy multi-currency transactions, international payments by toll-free telephone line, and specialist advice on investing, mortgage bonds, wills and estates, and so on.
If you visit London regularly, you have the advantage of a local branch of your international bank, which makes banking a lot more personal. A relationship manager service is offered at no extra charge, but you need to keep a balance in the account of £50 000, or, if you are a high earner, have an annual gross salary of at least £150 000 (or currency equivalent) to qualify.
For this day-to-day banking option, you would need to supply the bank with an employment contract, or your most recent payslip. If you plan to study abroad, you need to prove you have been accepted at a particular university or college.
Once you’ve returned home, you may keep the account open for as long as you need it, accessing your funds via toll-free telephone banking operated by the Barclays offshore call centre, and online banking. You can also use your Barclays debit or credit card to obtain cash directly from your account anywhere in the world via Visa-accredited outlets and to pay for goods and services.
While there is no charge for using your debit card in the UK, Barclays adds a foreign exchange charge of 2.99 percent of the transaction amount to the currency conversion rate when the transaction is processed. It adds another two percent to the charges if you withdraw cash over the counter (including at a Barclays bank) or use a non-Barclays ATM.
International payments from your account to another cost £30 per online payment, £40 per telephone transaction and £45 for a fax, letter or any other method of instruction. Payments into your account from outside the UK cost £6 (or currency equivalent).
iBank Saver
iBank Saver is a savings/investment account without day-to-day banking facilities. You need to maintain a minimum balance of R50 000, or currency equivalent, and there is no monthly service charge. The account may be operated in sterling, US dollars or euros and via international telephone banking or online, and offers what it says are competitive rates of interest and specialist advice if you need it.
If the value you intend to transfer to your newly opened accounts is more than £100 000, Absa asks for proof of funds on a recent, original bank statement.
Nedbank
Focus
Nedbank Private Wealth is the international private banking arm of Nedbank, with offices in Dubai, London, Jersey and the Isle of Man, as well as Johannesburg, Cape Town and Durban.
Its clients qualify by earning at least R1.5 million a year or having R5 million in investable assets, and then are able to transact and invest around the world by making use of the Focus service, which includes a multi-currency, interest-bearing current account and a Platinum Visa debit card. The service also offers lending, fixed-term deposits and commission-free foreign exchange services.
Opening a Focus account requires a minimum deposit of £50 000, US$75 000, or E75 000 in cash and investments, and the account can be denominated in any of those currencies.
There is a monthly management charge of R259 and an annual charge of £25 if your balance falls below the minimum £50 000 in your current account and investments. Detailed bank statements are free.
The current account pays monthly interest on balances over the minimum required to maintain the account, which is £10 000 (or “slightly more” if you use the Visa debit card).
Online banking provides access to your account 24/7 and allows you to make payments, transfer money between your accounts and set up sterling standing orders and direct debits in the UK.
The debit card allows you to make daily cash withdrawals up to £2 000 over the counter and at more than one million Visa ATMs in more than 200 countries and territories worldwide. If you have deposits in US dollars or euros, you can withdraw the equivalent of £2 000 in either of those currencies.
Back in South Africa, you can continue transacting and managing your accounts via the internet, telephone banking or through a banker at one of the Nedbank Private Wealth offices. Your credit card can be linked to the account, to allow you to shop and transact in any jurisdiction, with the usual currency conversion fees applying where necessary.
Standard Bank
Optimum
The bank offers international personal banking through Standard Bank Isle of Man, which allows clients to manage their money across borders, whether they are investing their allowances abroad, travelling, or earning income from business activities, property ownership or investments in foreign countries.
The Optimum service is available to all private banking clients in South Africa, who qualify by having an income of at least R700 000 a year and paying a monthly private banking charge of R299.
The Optimum account requires a minimum opening balance of £4 000, or the equivalent in US dollars, euros or Australian dollars. It can be operated in any one of those currencies and there is no additional monthly maintenance charge, as long as the minimum balance is maintained.
You can access your account anywhere in the world and move money between accounts through free internet banking. Online payments to third parties are subject to a standard charge of £20 a transaction, irrespective of the amount of the payment. A PIN-protected debit card is available for ATM withdrawals and point-of-sale and online transactions.
Telephone banking and customer support are available around the clock through a telephone banking team in the Isle of Man. For a more personalised service, you can use the services of a relationship manager at no cost, as long as you have a balance in cash and/or investments with the bank of £50 000 (or currency equivalent) in cash and/or investments.
The Platinum Optimum account is for clients at the next level on the wealth scale, and offers a higher rate of credit interest and a free Visa debit card (on request), with no additional annual or account maintenance fees.
Offshore Saver 96
Standard Bank also offers a 96-day notice savings account in any of the four currencies above and with no annual fee. You need an opening balance of £25 000, US$25 000 or E25 000, and you can deposit salary, earnings or savings into your account from multiple sources.
Interest is paid each quarter, but the rates are low: 0.1 percent for amounts up to £25 000; 0.75 percent for amounts between £25 001 and £100 000; and one percent for amounts ranging from £100 001 to £300 000. Spokesman Ross Linstrom says the rates compare well with those offered by other full-service international banks’ notice accounts.
FNB
Global account
If you earn more than R1.1 million a year, or have at least R3 million to invest, you can join the elite group of FNB Private Clients who are offered various offshore banking and investment services through the Global account. A Global account can be opened online and there is no monthly management fee.
The account permits you to make payments across borders via internet banking, repatriate funds from abroad, transfer foreign earnings from wherever you are in the world, or invest in one of the six currencies on offer via the FNB Private Clients cheque account.
Subject to exchange control regulations, you can also transfer funds from your individual investment allowance of R4 million and/or single discretionary allowance of R1 million a calendar year into your Global account in any of the six currencies offered.
You can hold the money in the foreign currency as a hedge against the volatility of the rand, or take advice from the bank’s wealth and portfolio managers to develop a diversified investment portfolio.
There is no dedicated Global account debit or credit card, and clients use the standard FNB Private Clients credit or debit card when travelling at the usual cost.
