You don’t have to be a high flier to have a foreign currency account or even an offshore bank account which have now become an easily available and relatively affordable option for South Africans who would like to hold some funds offshore.
As exchange control has eased over the years, it has become easier for South Africans to take money abroad. You can take R1 million offshore every year as part of your discretionary portfolio with minimum paperwork required and you do not have to apply for a tax clearance certificate. You do however have to declare the source of funds as part of the money laundering laws.
South Africans can also take up to R10 million a year offshore as part of their investment allowance although this does require Reserve Bank approval and a tax clearance certificate.
There are two options when it comes to foreign accounts:
Option 1: Foreign currency account
This is typically linked to your South African bank account but allows you to hold major foreign currencies in a transactional or call account. You can also hold more than one foreign currency account, for example you could have a US dollar and Euro account.
The minimum balance tends to be very low and there are usually no monthly fees, although transaction fees apply. With some banks money can only be transferred between your South African rands account and your foreign currency account although Absa allows third-party payments from its currency account.
This is an ideal solution if, for example, you are going on an overseas holiday and want to start saving to protect against a weakening rand. It can also be used for any offshore earnings you may receive.
FNB is the only bank that allows for online application as part of your online banking profile.
Absa’s foreign currency account is available in the major currencies and can be a transactional account, call notice or fixed deposit. Minimum balances are R5 000 (Call Notice) or R100 000 (Fixed Deposit). It allows for international payment in the currency of the account to a third party, although instructions have to be given in-branch. An international transfer fee will apply but there is no currency conversion fee.
FNB’s global account is linked to your FNB account so you can transfer funds between your bank accounts but you cannot make a third party payment. There is no minimum balance and no monthly fees and the account can be opened online through your FNB account. The account is available in six currencies: US dollar, euro, British pound, Australian dollar, Indian rupee and Chinese renminbi.
Standard Bank’s foreign currency account is available as a call account or notice account in US dollars, euro and British pounds. The minimum balance is USD400 / GBP100 / EUR400. Third-party payments are not allowed and deposits have to be done through Standard Bank’s non-resident centre.
Nedbank’s foreign currency account has a 48-hour notice period and no monthly maintenance fees. The foreign currency account is funded via your Nedbank current account and is available in US dollars, euro and pounds. The minimum deposit is USD100 / GBP100 / EUR100. Withdrawals will be paid to your Nedbank transactional account.
Option 2: Offshore full banking account
This is a bank account held offshore, usually in one of the Channel Islands. It is a regular bank account and you receive a debit card which you can use at any ATM or point of sale across the globe. You have access to internet and mobile banking and can make third-party payments or even set up debit orders. These accounts do have higher minimum deposit requirements with monthly and transactional fees. Although in many cases debit card charges and monthly fees are waived if you maintain a minimum balance, other transaction fees such as international payments can carry hefty charges, so do your homework.
Typically, this would suit someone who is funding a child abroad, is a regular traveller or who has significant assets offshore. These accounts can be opened via your local bank although they are domiciled overseas.
Standard Bank has have made offshore bank accounts available to a broader client base offering customers accessible banking across the major currencies. FNB also offers a more accessible banking product although limited to British pounds, while Absa and Nedbank offshore bank accounts are only aimed at private wealth clients.
- The Standard Bank Optimal Account is Isle of Man registered and provides a Visa debit card, internet and mobile banking, debit orders and third-party payments. It is available in British pounds, US dollars, euro and Australian dollars. The minimum balance is determined by the currency selected, for example £4 000 (works out at around R70 000 at the current exchange rate). If you do not maintain a minimum balance, there is a quarterly fee on the account which works out at around R450 per month. There is no charge for debit card swipes at merchants but there is a fee for ATM withdrawals.
- Standard Bank Private Client Optimum Account is only available to Standard Bank Private Clients and has no monthly fee, no annual card fee and only requires a minimum balance of around R45 000 – although again this is quoted in the currency of the bank account.
- FNB Sterling Current Account offered through FNB Channel Islands offers a debit card and online banking. ATM and branch withdrawals are free as are debit card swipes. A monthly fee of £15 (R265) is only charged if a minimum balance of £5 000 is not maintained. One can also opt for a call account or fixed deposit for higher interest rates. The savings and investments accounts are available in sterling, US dollars and euros.
- Absa offers a Barclays bank account in the Isle of Man in your currency of choice. Online and telephone banking are automatically included, but Visa debit cards are only issued on GBP current accounts. Clients only qualify for this proposition if they are in a position to open the account with £25 000 or currency equivalent and are able to maintain this value with Barclays Wealth, although it could be placed in an investment via Barclays Wealth. Accounts are opened free of charge and there is no monthly fee on the accounts unless the total holdings with Barclays fall below the minimum requirement, at which stage a £20 monthly fee will kick in.
- Nedbank Private Wealth offers their private wealth clients international banking across multicurrency as well as Visa and American Express Cards.
Remember to declare your bank account
If you are living in South Africa, any income or investments you have abroad form part of your South African taxable income, so you need to declare any foreign bank account or investment in your tax return. And don’t think about “hiding” this money. This year the Common Reporting Standard was introduced which requires countries to share information with each other. According to Greg Barclay, head of International Personal Banking at Standard Bank, the bank is required to report to the regulator of the jurisdiction in which it operates. For example Standard Bank would be required to report details of all its account holders as well as their tax details to the Isle of Man authorities. This information is then passed on by the Isle of Man to the South African regulator which includes SARS.
Don’t just rely on rand weakness
It is important to note that you earn very little interest on foreign currency accounts (usually less than 0.5% per annum) and this is not ideal for long-term investments. For longer-term investments, you should consider investing in higher-return investment accounts. These may be included in the suite of available products offered by the bank or alternatively, many South African asset managers offer offshore investment funds.