The Future of Brazil’s Economy: Investment Grade.

The potential for Brazil to be among the world’s front-runners as one of the most stable and prosperous economies has existed for as long as it’s been inhabited. It’s natural resource quality and quantity is rivaled by no other nation and it’s society is controlled by a democratic government whom support capitalistic philosophies and open and free markets (although Brazilians still prefer a strong government presence). And when you take a closer look at the formation of Brazil you can’t help but notice striking resemblances to elements seen in the formation of the United States (although not all of them beneficial towards economic growth).

A November issue of The Economist noted several similarities of the make-up of Brazil to the US. The most prominent listed below:

• Both are continent sized countries in the western hemisphere with vast amounts of natural resources.
• Both are controlled by federal democracies in which individual states have substantial power.
• Both were originally formed by small European nations before gaining independence.
• Both populations are comprised of the descendants of their original inhabitants, early colonists and African slaves along with European and Asian immigrants following closely behind.
• Both places show a favoritism of consumption over saving during times of prosperity.

When you combine a country who is rich in natural resources (Brazilian/Portuguese term for understatement), who encountered a similar formation to a country with the largest economy in the world, and a democratic government with capitalistic tendencies, you’re surely bound for financial success, no?

Economic Facts suggesting a very successful 2010 for Brazil:

• Self sufficient in oil.
• Recent discoveries in off shore oil being brought to market.
• 3 out of 3 of the main rating agencies classify Brazil as “investment grade.”
• Brazil has announced it will begin lending money to the IMF (an organization who only 10 years prior was reluctant to lend money to Brazil).
• FDI (foreign direct investment) was up 30% in 2009 while the rest of the world suffered a 14% loss in FDI.

While the bulk of economic gains for Brazil will undoubtedly take place outside of the 365 days making up 2010, the long-term future is certainly bright for this South American country.

Further Reading:

Learn how to add foreign currency bank CD’s to your portfolio, OR foreign currency index CD’s.

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

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.

Adding foreign currency CD’s to your portfolio

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.

Foreign Bank CD Rates

(provided by Everbank)

Tomorrow we will take a look at diversifying your foreign currency CD investments through Multi-Currency Index Funds.

Millenium Bank CD Rates and Bank Review

If you have been in the market for CD (certificate of deposit) rates than you have most likely come across Millenium Bank. Not to be confused with the Millennium Bank of Virginia, the Millenium Bank of the West Indies is a subsidiary of the United Trust of Switzerland, SA. They are a Swiss-registered private trust company which was founded in 1931. The difference in their bank certificate of deposits and those offered in the US is that they are  not FDIC insured and thus may not be the safest investment route to take. That being said, MB’s stance on this issue is that you can trade in the security of federal insurance for more appetizing bank rates.

Millennium Bank CD (certificate of deposit) Rates

Needless to say their rates alone demolish those offered in the states. After looking around through on-line forums and digging a little further into where exactly their bank is located I have found a few major issues I would like to point out.

First, as far as forums go I see an estimated 75% of people saying “stay away” while the other 25% seem aprehensively curious. I have not, however, found anyone on any forum that has claimed to had their money dissapear, however that may be beacuse no one in these forums has actually invested with them.

Their physical location is a bit sketchy as well (Stoney Ground, Kingstown St. Vincent and the Grenadines, West Indies). Their population is roughly 125,000 with an unemployment rate of 22% and a middle to lower-class economy. It seems that their economy is basically supported on exporting bananas and importing tourists (not the sort of international financial hub one would hope for).

If you have successfully (or unsuccessfully) invested with this bank please tell us about your experience!

Mexican Bank Certificate of Deposit Rates

A couple weeks ago BankVibe covered Capital Bank of Mexico’s CD rates. To recap, Capital Bank of Mexico offers potential American customers CD rates yielding an APY of anywhere from 12-19%. Even when compared to other foreign currency CD rates these are still suspiciously high.

The catch? Well, for starters Mexico doesn’t have any sort of FDIC equivalent to protect your investment against an economic/bank collapse. They do, however, state that throughout their 75 years of existence no American (or non-American) investor has EVER lost their principle and/or interest accrued.

Needless to say, their has been much interest surrounding these certificates of deposits and their accompanying rates, so I thought I would share a recent Economist article which can hopefully shed some light on the Mexican banking industry and the recent history of their economic stability (or lack there of).

The Economist article stated that, after the 1994 peso crash, the risk of Mexico’s difficulties spilling over into America was considered so great that the Clinton administration helped bail out its southern neighbor. In the first quarter of 2008, the boot was on the other foot, though the scale was entirely different. Now it was the turn of Banamex, one of Mexico’s two largest banks, to help out Citigroup, its crisis-stricken parent. Banamex provided $453m of the $1.1 billion Citi earned in net income from its overseas operations between January and March (Citi lost $5.1 billion overall).

The article went on to state that Mexico has one of the most open banking systems in the world; two of its top five banks are Spanish-owned, one is American, one British, and only one is Mexican. Yet the crisis in global banking has barely ruffled it. Also, Mexico’s economy is usually more exposed than almost any other to a slowdown in America. As Alejandro Valenzuela, boss of Banorte, delicately puts it: “Decoupling is the wrong word, but there is now a certain shield.”

If a Mexican bank is solvent enough to bail out a deficient American bank does that mean they are becoming reliable enough for foreign consumers to purchase certificates of deposits?

Would you feel safe trading in the security of federal insurance for more lucrative rates?

ICICI Bank Savings Accounts and Deposit Rates

Lately there has been much buzz/comments regarding foreign curreny CD rates at BankVibe.com. This has prompted me to showcase one particular foreign bank that, in my opinion, safely meets my banking standards (even though they would reject my business because I am not a national citizen).  ICICI Bank of India is India’s second largest bank with a presense in 18 countries. They were originally promoted in 1994 and quickly gained the trust of the country, accumulating roughly $82 billion (US dollars) in assets throughout their first 15 years of business.

Today they offer certificates of deposits, high yield savings accounts, and online savings accounts with rates that absolutely demolish those of the United States. After sifting through their certificate of deposit rates and reading through some customer feedback, I found that not only are these rates abnormally high, their is also an extremely loyal following. I’ve listed some of their highlighted savings rates below.

ICICI Bank Certificate of Deposit Rates

• 90 day Certificate of Deposit (as of 1/19/09) 5.75% - 6.50% APY depending on deposit amount.
• 181 day Certificate of Deposit (as of 1/19/09) 7.25% APY
• 365 day Certificate of Deposit (as of 1/19/09) 8.25% APY
• 3 year Certificate of Deposit (as of 1/19/09) 9.00% APY

These rates are, needless to say, astonishing and should be taken advantage of if qualified. While digging through their FAQ page and reading some comments I noticed that if you are a dual citizen (Inidan and US) or an Indian citizen living in the United Sates you may be able to invest in their bank CD’s. However, it may require contacting them directly and jumping through some hoops.

What furthered my infatuation with this bank was a recent interview done with their CEO, K. Vaman Kamath, in which he discusses the role of technology in the future of banking.

If you have or know someone who has purchased a certificate of deposit with ICICI bank please leave a comment below. Thanks.

Foreign Bank CDs - Investing in growing economies

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.

Canadian CD Rates vs US CD Rates

Today numerous Canadian lenders matched the Bank of Canada’s interest rate cut. This has been the first time this has occured in 3 months and will hopefully boost revenue for Canadian banks amid our recession.

According to Bloomberg the lenders included Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada and Bank of Nova Scotia. These banks cut their prime lending rates to 3 percent from 3.5 percent. This now matches the central bank’s 0.50% cut. The article also states that the Bank of Montreal lowered its five-year variable mortgage rate by 50 basis points to 4 percent.

How will this affect domestic and Canadian CD Rates?

It’s too early to say how this may effect the Canadian CD rates, but if you compare our domestic CD rates with Canada’s you will see they are currently yielding fairly similar rates. Many CD rates in the US dipped slightly after the fed cut our rate to it’s current 0.25-0.50% range.

Now, you can obtain Canadian bank CDs for between 3.0-4.75% depending on duration of CD and deposit amount. The US’s best CD rates yield between 2.0-4.0% depending on those same variables.

Are foreign currency CD’s a good investment strategy?

I suppose if you are looking to diversify your portfolio and hedge against a falling US dollar, foreign currency CD’s may be a decent place to start looking. However, my initial hang-up with these is that there is a potential to lose a portion of your principle. In the US, when we invest or even consider investing in CD’s I would assume our primary attraction is that we are guaranteed a return (thanks in part to FDIC-insurance), with foreign currency CD’s we are not. If your selected foreign currency depreciates against the US dollar while you are holding the foreign currency CD you may lose a portion of the principle.

The positive side to the foreign currency CD strategy is that you have the freedom to invest in practically any currency the developed (or even undeveloped) world has to offer. Below is a chart (provided by EverBank) displaying the current yields of these investments:

3-month South African Rand CD yielding 8.00% anyone??