Personal finance: Don't stray too far from home if you want security

From Alderney to Uruguay, there are over 40 locations which offer the kind of favourable tax environment that some investors seek. But to invest wisely you should follow a few basic rules - or stick to safer fixed interest products, writes Simon Read.
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Security is essential when it comes to handing money over. You want to feel that your investment is safe and that the financial authorities are trustworthy. Are you comfortable dealing with the bankers on the tiny East Caribbean twin islands of St Kitts and Nevis, for instance, or would you feel happier with your money closer to home?

Accessibility is the third key aspect. There are three elements to this - communication, infrastructure and currency. You will want regular information on your savings, so choosing an English-speaking centre makes sense. Time zones are important.

You may want to visit your offshore financial centre at some stage. If so, Jersey is just an hour or so flying time away from the mainland, while Mauritius is the almost half way round the world. Infrastructure means having access to appropriate local experts, such as lawyers and accountants.

Finally, currency is important. Local currencies can be much more volatile than the main international ones. If you want to invest in sterling or dollars, or even the French franc, you will need to find centres that allow you to do so.

Realistically, most UK investors should be keeping the choices down to the Channel Islands - either Jersey or Guernsey - the Isle of Man, Eire and mainland Europe, chiefly Switzerland or Luxembourg.

The Channel Islands and the Isle of Man have "designated territory" status in the UK, which means that their regulatory standards are deemed equal to those in Britain.

Going offshore with your savings may seem exciting. But finding a safe home for a lump- sum investment soon brings investors back down to earth. Fixed-interest bonds may not sparkle in performance terms, but they are usually far safer than investing in equities.

Generally, apart from low-yielding instant deposit accounts, the minimum investment term usually starts from six months and extends up to five years or more. The longer the investment term, the better the rate offered.

The amount you invest will also affect the rate of return, with larger sums getting more interest. Minimum investment levels can start as low as pounds 500 with Portman Channel Islands, the offshore subsidiary of the Portman Building Society. Based on Alderney, one of the smaller Channel Islands, it will pay a minimum rate of interest of 7.25 per cent on lump sums deposited for one year.

Most fixed-rate financial products pay interest at the end of the investment return when the account matures. However, if you want interest paid monthly, quarterly, half-yearly or annually, there is a wide choice.

On offer at the moment, you can get 7.45 per cent a year over five years for an investment of pounds 10,000 or more at Halifax International (Jersey). Shorter investment periods will mean lower interest rates. So for four years, Halifax pays 7.4 per cent, for three years 7.3 per cent, down to 6.85 per cent if you invest for just six months.

At the offshore Co-operative Bank, a three-year fixed investment will yield 7.25 per cent, although interest is not compounded, while Barclays Finance (Guernsey) is paying 7 per cent over five years. Other high street institutions offering fixed-rate accounts at their offshore subsidiaries include Bank of Scotland, Britannia International, National Westminster (Jersey), Northern Rock and TSB Bank Channel Islands.

If you're prepared to try one of the less well-known names it may be worth tracking down companies such as ESB Bank (IOM), Isle of Man Bank, Newcastle Bank (Gibraltar), Northern Offshore Banking and Sun Banking Corp (Jersey), which offer fixed-rate accounts.

Details of the latest rates are available by calling these companies direct or by asking at their high street branches. MoneyFacts, the specialist financial magazine, publishes a monthly list of top rates.

MoneyFacts subscription enquiries: 01692 500665.

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