Foreign Currency Index CD’s – What yields should you expect?

April 2, 2009 3 Comments »

Below are some of the highest yielding “World Currency Index CD’s.” Compare different strategies and find the best match for your portfolio.

If your looking to get into foreign currency CD’s but are having a difficult time overlooking their risk factor, then you may wish to diversify into a foreign currency index CD (or as EverBank calls it, a “world currency index CD”). Basically all these financial products do is diversify your foreign currency CD’s into multiple currencies with varying interest rates.

Remember, when dealing with foreign currency CD’s you must always take into account how your desired currency will compare with the US dollar throughout the life of the CD. If the US dollar weakens against the currency you have invested in, you stand to make more money than the fixed interest rate would indicate, however, you can also lose money if the opposite occurs.

Foreign currency index CD’s mitigate this risk by assigning portions of your overall investment to different currencies and rates. Typically the overall amount is broken up into 3-6 currencies. Below are some of EverBank’s World Currency Index products:

Commodity Index CD (foreign currencies)

This index product is built around four different currencies from “commodity-based countries.” Below is the break down.

Australian Dollar (25% of total) yields 1.63% APY for 6 month terms

Canadian Dollar (25% of total) yields 0.13% APY for 6 month terms

New Zealand Dollar (25% of total) yields 1.88% APY for 6 month terms

South African Rand (25% of total) yields 6.09% APY for 6 month terms

As an overall index, the commodity Index CD yields 2.52% APY for both 3 month and 6 month maturities. The current US national average for certificates of deposit with these same maturities is 1.45% and 1.51%, respectively.

As an index, this will supposedly outperform US CD (certificates of deposit) with the same maturities primarily due to the lucrative rate provided by the South African Rand. However, if you were to solely invest in the South African Rand you would encounter a substantial amount of risk. This index CD hedges against that risk by countering 25% invested in the South African Rand with 75% invested in very stable and developed nations (with lower accompanying yields).

Petrol Index CD (foreign currencies)

This is another EverBank product. It is built on 3 currencies from non-middle eastern, oil producing (and exporting) nations. The currencies and their overall percentage of the index are as follows:

British Pound – (33% of total) yields 0.13% APY for 6 month terms

Mexican Peso – (33% of totatl) yields 5.83% APY for 6 month terms

Norwegian Krone – (33% of total) yields 0.75% APY for 6 month terms

As an index, the Petrol Index CD yields 2.01% APY for both 3 month and 6 month maturities. Again, beating the US national average by over 0.50% APY on the same maturities. A common theme with EverBank’s “World Currency CD’s” is to have atleast 50% of an index comprised of stable currencies from stable countries with modest rates complimented by more lucrative rates by “iffy” nations, to bring the overall yield to a respectable percentatge.

To learn more on foreign currency CD’s you may want to review EverBank’s World Currency center.

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  • Ian

    I’ve read on another financial site that people were making 20% – 30% returns with foreign bank CD’s when the US dollar was falling against Europe a couple years ago. Are these still performing well?

  • http://www.facebook.com/caribreporters Bill Milligan

    Certificate of deposits in Ecuador range from 4-10% (credit unions), plus they use the US dollar as their currency. Do you have any information on these?

  • BankVibe

    Bill Milligan – I dont have any info on these specifically but I do know you can’t purchase them with FDIC insurance – which adds some significant risk.

    I would say just as a rule of thumb, be sure to do some serious due diligence on the individual bank or credit union to see how stable it is before you open a deposit.

    Specifically I would look into the credit union’s “Texas Ratio” which quantifies the potential credit risk the bank may be taking on.

    You’ll also want to dig into the deposit growth if you can. The larger the deposit growth, the more trust people are putting into the bank (or credit union).

    Let me know what you decide and which bank you chose if you do open a deposit with an Ecuadorian bank!