Foreign currency CDs

[cyclone6]

Has anyone used Everbanks foreign currency CDs? There appears to be some attractive short-term (3-6 month) rates available for Brazil, S. Africa and India.

I know there are possible currency fluctuation concerns with these CDs - but for such short terms is the risk really that great? Is there anything (other than another collapse and the flight-to-quality) that could drive the dollar significantly higher in the short-term?

Just wondering if this is just foolish chase for yield, or a potential short-term place to stick some cash...

Thanks!

 

[BigNick]

I don't see any reason for CD investors - who, by definition, are looking for secure returns - to buy foreign CDs. The gain or loss due to the exchange rate risk is likely to dwarf the difference in the interest rate. You might as well buy equities.

Of course, you could also hedge the exchange rate risk, but I'm going to bet that the cost to do that will be more or less exactly the difference in the interest rate, plus 10% for the middlemen.

 

[nun]

I don't see any reason for CD investors - who, by definition, are looking for secure returns - to buy foreign CDs. The gain or loss due to the exchange rate risk is likely to dwarf the difference in the interest rate. You might as well buy equities.

Of course, you could also hedge the exchange rate risk, but I'm going to bet that the cost to do that will be more or less exactly the difference in the interest rate, plus 10% for the middlemen.

One reason to buy foreign CDs is if you are a US citizen living abroad. Of course you could just invest in a local saving account, but if you want to keep the money in the US it's a way of avoiding currency fluctuations. The US $ CD would have the currency risk.

 

[Gumby]

For several years, I had money in Everbank CD's denominated in Brazilian reais. Brazilian interest rates are substantially higher than those in the US. Some years, I made money on exchange rates, some years I lost money. Overall, however, I came out ahead.

 

[mb]

For several years, I had money in Everbank CD's denominated in Brazilian reais. Brazilian interest rates are substantially higher than those in the US. Some years, I made money on exchange rates, some years I lost money. Overall, however, I came out ahead.

Is there a reason why you stopped doing this?

 

[Gumby]

Is there a reason why you stopped doing this?

In summer 2009, I used a good chunk of the money to finally pave my driveway (1800 sqft. of fancy pavers is very expensive) and put the rest into equities. I may go back to Brazilian CD's in the future and would be very happy using Everbank to do so.