Downside for cd's in Australia

[frank]

I saw reference on this site to cd's in Australia. I checked it out and they are paying 4% more than anywhere in the U.S. I emailed the bank and they said it was possible to have cd's over there except that you had to show up in person at one time or another to verify who you are. I know it would cost to travel over there and set up the term deposits. Are there any other pitfalls that I am not seeing? thanks

 

[brewer12345]

Uh, the possibility that the Aussie dollar drops vs the USD comes to mind as a major issue.

 

[Meadbh]

If you were looking for a reason to vacation in Australia.....hmmmm, must check out the Australian dollar versus CDN$.......

 

[Trek]

You can get a 3.50% 12 month Aussie CD through Everbank and not leave the comfort of your own home.

Foreign Currency - WorldCurrency CD | EverBank

 

[MasterBlaster]

Better yet - You can participate in the global carry trade.

Borrow money in Japan at very low rates (maybe 1 percent).

And then put that money elsewhere (Iceland ??) at maybe 11-15%.

For every $1MM you borrow you should net around $140k per year.

The good life awaits you !

 

[frank]

Am I detecting a little sarcasm from masterblaster?

 

[brewer12345]

Am I detecting a little sarcasm from masterblaster?

Jst a smidge.

Actually, there are plenty of investors who do something similar. Sometimes they hedge with currency derivatives and the like. But these are not low-risk strategies suitable for someone looking for a CD equivalent.

 

[Alan]

I saw reference on this site to cd's in Australia. I checked it out and they are paying 4% more than anywhere in the U.S. I emailed the bank and they said it was possible to have cd's over there except that you had to show up in person at one time or another to verify who you are. I know it would cost to travel over there and set up the term deposits. Are there any other pitfalls that I am not seeing? thanks

Exchange rate changes are a big issue (as well as having to turn up in person). When we sold our house in the UK in 1992/3 the exchange rate was real low and I could get over 10% interest in the UK so we left over 50K GB pounds in an off-shore account. I monitored the $ value of the savings and it was a pretty wild ride with the exchange rate swamping the interest rate. At one point the savings were down 7% and we moved it over after 2 years and made a grand total of 13% over 2 years.

That one experiment with exchange rates was enough to put me off even though we did come out ahead.

As another example, I receive a small monthly pension from a UK firm, paid in GB Pounds and so I have to record the exchange rate on the day I receive each payment. Looking at 2008, the pound fell over 26% between January and December.

You may like to look at historical exchange rates for the AUS $ on XE.com to see what fluctuations there have been in the past.

 

[DangerMouse]

I'm an Aussie who holds investments in Term Deposits in Australia. However, I wouldn't advise anyone to do the same unless at sometime in the future they were thinking about living there, so would not have to worry about exchange rates. If you ferret around, you an find interest rates of 7% in Oz. I would not worry about the banks going under, as the Big 4 in Australia are usually rated in the top 20 banks in the world.

However, I think the exchange rate could be your enemy at this time. Over the past year it has been varying between low 60s and all the way up to the 90s. It's high at the moment so I would not even want to take the risk that it may fall back to the 60s.

 

[DangerMouse]

BTW the reason you have to go there is to verify your identity when you open an account with a bank. In Australia we have something called the 100 point test used to verify ID. Would need to provide passport, driver's licence etc., it is designed to stop fraud.

 

[Alan]

BTW the reason you have to go there is to verify your identity when you open an account with a bank. In Australia we have something called the 100 point test used to verify ID. Would need to provide passport, driver's licence etc., it is designed to stop fraud.

Since 9/11 it is extremely difficult to open a bank account in some countries you are not resident in. My sisters are close to winding up my late father's estate with the sale of his house, and since my brother lives in Australia and doesn't want to transfer the money as the exchange rates are really poor at present has asked my sister to open an account in her name and hold the money indefinitely for him as it so difficult or impossible for him to open an account.