A new savings vehicle known as "accumulator accounts", which allow savers to defer tax liabilities have been launched by several banks and b...

A new savings vehicle known as "accumulator accounts", which allow savers to defer tax liabilities have been launched by several banks and building societies in the Isle of Man. The launch of the vehicles has beeen prompted by the European Union's Savings Tax Directive, launched earlier this year. Rather than exchange of information about savings interest income between the tax authority where the saver's account is held, several territories, including the Isle of Man and the Channel Islands, have opted to apply a temporary withholding tax, currently levied at 15 per cent. Institutions including Alliance and Leicester International, Anglo-Irish Bank, Bradford and Bingley International, and Britannia International have launched so called accumulator accounts, which delay the payment of interest until the account is closed. Investors can potentially benefit from lower rates of tax if they are planning to become resident for tax purposes in another territory before the account is closed. The big disadvantage is that interest cannot be compounded, so savers must decide whether any future tax liability is likely to exceed potential lost returns. Accumulator accounts will be particularly helpful for those planning for their retirement, intending to downsize or looking to move abroad. Depending on the lock-in or withdrawal notice periods stipulated by the account provider, interest rates on these vehicles currently range from 4.45 per cent to 4.85 per cent.