Want better interest rates on your savings? Try foreign currency certificates of deposit. Below are the going rates for CD’s in various developed (and undeveloped) nations, as well as 5 crucial elements to take into consideration before investing.
First I’d like to mention that the main lure for domestic CD’s (certificates of deposit) are their relative safety when compared to all other possible investments in the universe. In almost all cases they are federally insured, fixed rate, time deposits in which you clearly know what you are earning and how long it will take. EverBank’s CD’s are protected against bank failure by the FDIC but your deposits are still susceptible to losses and gains due to currency price fluctuations.
5 things to consider before investing in foreign currency CD’s:
1) Perhaps the most crucial and sometimes overlooked factor of foreign currency CD’s is the constantly changing value of one currency vs. another. Before you invest in a foreign currency CD you must first convert your US dollars into the desired currency. If you happen to invest, say, $10,000 into an Indian bank and the Indian Rupee falls 10% while your money is invested then you could end up with far less than you put in. However, the inverse of this effect is also true and substantial gains can be earned as well.
2) Make sure you know the exact path in which your money is taking in order to get to the desired foreign bank. Are you simply wiring your money to a broker overseas? Do you know the broker or institution in which you are investing? For example, the Capital Bank of Mexico is currently offering any United States customers a 90-day 12% APY certificate of deposit. Sound attractive? I’d first read up on BankVibe reader comments before investing. Some claim it is a complete scam, however the Capital Bank of Mexico claims it has never lost any depositor’s principle or accrued interest. Needless to say, due diligence is a must.
3) While EverBank’s CD’s are federally insured by the FDIC (up to $250k) other foreign currency CD’s may not be. If a foreign bank or broker is offering suspiciously high rates then it is likely they are not insured. Always inquire into deposit insurance before investing.
4) How has the country performed on a macro-economic level when compared to the United States? Is this country experiencing growth? Are they a capitalistic society? Are they rich in natural resources and do they efficiently get them to market? A country experiencing consistent growth due to positive fundamental changes in their government is more likely to have stable banks. Banks grow in stability when they are able to securely finance a range of diverse domestic business ventures, land and home purchases, a well as obtaining new deposits.
5) How accessible is the institution in which you wish to invest. Can you receive support relatively easily? Do you get a response within 24 hours? Are there English speaking customer service agents? Do they deal with American deposits regularly?
Above are all crucial questions and criteria you should carefully consider before investing in foreign currency CD’s. And as always, you should speak with a certified financial adviser before opening any new deposit account.
Tomorrow we will take a look at diversifying your foreign currency CD investments through Multi-Currency Index Funds.