EverBank has long offered a variety of MarketSafe CDs. Their latest version is called the MarketSafe Currency Returns CD. It's not the typical CD in that there is no guaranteed rate of return. However, it does guarantee that you will not lose any principal over the 4 years if you avoid early withdrawals.
The last EverBank MarketSafe CD that I reported on was in June when they were offering the MarketSafe Diversified Metals CD. One problem with that one was that it was based on quarterly averages which appeared to reduce the potential upside. For this new Currency Returns CD, it's based on the point-to-point price performance of the index.
The point-to-point pricing method may be better, but the index that this new MarketSafe CD is based on is more confusing. It's the Deutsche Bank Currency Returns (DBCRSM) Index. Here is how EverBank describes this index in its Currency Returns Terms Sheet (pdf):
An investable index, DBCR captures long-term systematic returns available in the world’s currency markets. On a daily basis, DBCR invests in one third of each of the following indices: DBCR Currency Carry Sub-Index, DBCR Momentum Sub-Index, DBCR Valuation Sub-Index. The pool of currencies eligible for inclusion in each of these indices is U.S. dollar (USD), Euro (EUR), Japanese Yen (JPY), British pound (GBP), Swiss franc (CHF), Australian dollar (AUD), New Zealand dollar (NZD), Canadian dollar (CAD), Norwegian krone (NOK), and Swedish krona (SEK).
The Terms Sheet has more details along with a historical index returns graph and table. I haven't been able to find much info on this index on the web. If you have more info on it, please leave a comment. I don't have any opinion about what the chances might be of this index going up over the next four years.
Here's a summary of the CD's features as described by EverBank:
- 4-year term
- $1,500 minimum deposit
- 100% Deposited Principal Protected
- Funding Deadline: September 16, 2010
- Issue Date: September 28, 2010
- Pricing Method: Point-to-Point
- FDIC insured: Yes
- Account Types: Personal, Business, IRA
Some Important Downsides:
No early withdrawal is allowed. If you die, your heirs can take an early withdrawal but there is no principal protection. Here's how EverBank describes this:
Except in the event of death or adjudication of incompetence of the holder of the MarketSafe CD, you may not withdraw any part of the CD prior to maturity. If you do withdraw early, even if that is due to the death or adjudicated incompetency of the holder of the CD, you will NOT receive Principal Protection and will NOT benefit from any upside potential of the Reference Index, experiencing a loss of principal as an early withdrawal charge.
If held outside of an IRA, the tax consequences of this CD seem complicated. It appears you are taxed yearly even though the rate of return is unknown until maturity. Here are the details as described in section 4.3.11 of the EverBank's Terms & Conditions page
Tax Considerations. For United States Federal income tax purposes, EverBank intends to treat a MarketSafe CD as a "contingent payment debt instrument" subject to taxation under the "noncontingent bond method." Accordingly, a U.S. holder of a MarketSafe CD will be required to accrue interest income on a MarketSafe CD in its gross income each year on a constant yield to maturity based on a comparable yield in accordance with the original issue discount rules (subject to adjustment to reflect differences between actual and projected payments). The depositor should also be aware that, for purposes of calculating the interest, if any, payable on the MarketSafe CD(s) at maturity, the appreciation in the investment will be determined based upon the Product Calculation Rules noted in the Term Sheet, and treated for U.S. federal income tax purposes as ordinary income, not capital gains.
I can't say if this EverBank CD is a good deal or not. It is an interesting CD, and when rates are so low, it's nice to have some alternatives to the plain CDs.
In a previous post on Equity-Index CDs (or equity linked CD), I described how you can build your own equity-index CD with a combination of a stock mutual fund and a 5-year regular CD. The same could be done with currencies or gold through ETFs. The TheFinanceBuff blog has an informative case study on index linked CDs which shows that index-linked CDs can have advantages. However, each index linked CD has to be evaluated to understand its pros and cons.
EverBank also offers World Currency CDs which unlike the MarketSafe CDs don't offer any principal protection. Please refer to my EverBank World Currency CD review for more details about these CDs. The financial crisis that hit Iceland in 2008 showed the risks of investing in these CDs. I have more details about these risks in this Foreign CD review.
EverBank Deals on Regular Bank Accounts
If you prefer to stay with conventional money market and checking accounts, EverBank does have some good deals. EverBank is still offering a $75 bonus for opening its Yield Pledge Money Market Account and FreeNet Checking Account. That $75 is on top of its 3-month intro rate of 2.25% APY. (see my EverBank bonus review).
EverBank's ratings for safety and soundness continue to be strong: 4 stars (excellent) at BauerFinancial, 4 stars (sound) at Bankrate.com and an overall health score of 4 out of 5 at DepositAccounts.com (see our Everbank rates and reviews page). These ratings are based on 3/31/10 financial data. EverBank has been a FDIC member since 1998 (FDIC Certificate # 34775).