Foreign Bank CDs – Investing in growing economies

January 27, 2009 3 Comments »

American CD rates are at an all time low. Today, the national average for CD rates hovered around 2.30% APY for 1 year maturities. Even the most conservative investors are finding these rates unacceptable. So, where can someone place idle cash to safely yield a decent return (and beat the rate of inflation)? The stock market probably isn’t a safe bet (yesterday the Dow was flirting with the 7000′s) and neither is real estate, but what about investing in foreign economies? After researching foreign currency CDs I found a few options that remain enticing but slightly suspicious.

First, if you happened to stop by BankVibe a few weeks ago you may have seen the article prodding into Capital Bank of Mexico’s CD rates. Their CD rates, while impressive (yielding 12 to 18 percent annually), may be questionable partially because they don’t federally insure their bank deposits. You may have also noticed that EverBank offers FDIC insured foreign certificates of deposits yielding more modest gains than those of Capital Bank of Mexico. The problem with these is that if the foreign currency in which you are invested weakens against the US dollar your gains will inevitably be slighted. Just ask anyone who opened a deposit account with Icelandic banks. Just this week Iceland’s economy (and currency) virtually failed due to a non-functioning government and a weakening world economy.

Despite all the negatives, investing in foreign CD’s may be profitable for many individual investors. However, for those considering an investment in foreign currency CD’s, I would suggest the use of strict filters rejecting all economies/banks not experiencing growth as well rejecting all countries/banks not sustaining a reputation of full and timely payment.

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  • BloggingBanks

    While the yields on foreign currency CD’s might be higher, your principal might be eroded if the US dollar strengthens against other currencies.
    Do not chase yield blindly :-)

  • http://www,Invesmint.com Bernz

    Great post and very true, in fact one of my friends have invested his money in one of the biggest banks in the Philippines. It’s very similar to our CD here, not exactly know what they call it but the rates are around 4.5% net. Meaning the way it works out there was they automatically take the taxes upon withdrawal. So actual rates were really more than 5% and can be renewed monthly.

  • Nathan

    I’ve invested overseas with no problem. When you talk about using strict filters I would say that is of the utmost importance. Obviously never invest in a foreign bank that just operates a website with no customer service or direct contact info. Also I would stick to economies that are relatively stable when compared to the United States. I invested in the Indian Rupee a few months back (i think it was a 180 CD) and they offered to send me my principle with interest upon the EXACT day of maturity but I opted to keep it invested with them. Just make sure you do your due diligence when filtering through foreign currency CD’s and stick with nations that are developed. My 2C