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EverBank's MarketSafe Currency Returns CD - Is It a Good Deal?

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EverBank

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).

FDIC/Financial Overview

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).


Related Pages: EverBank, CD rates, IRA rates

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Comments
5 Comments.
Comment #1 by Anonymous posted on
Anonymous
Stay away from EverBank. They are crooks and you will not see a dime in interest paid back to you.

They will bet against you making money in parallel derivative issued by them to serve as insurance against you making money.

They control the currency market, they decide what you get or if you get any money or they make you pay income tax on posted earnings one year, then they wipe it out with posted loss the next year and so on.

Your money will serve as free money for them and at the end they will boast that you should be lucky that you didn't loose any money. If you are conservative investor this is not for you, unless you need capitol losses to deduct from another income.

9
Comment #2 by TFB (anonymous) posted on
TFB
The point-to-point calculation method is better but the index is really opaque. Who knows what currencies they invest in and how they rotate over time. Pass.

3
Comment #3 by Anonymous posted on
Anonymous
I purchased a $5000 Everbank "MarketSafe" Gold CD that just matured.  It was explained to me that the yield would be based on the spot price of gold the day I bought the CD and the date it matured.  That turned out to be a load of BS.  Gold was $556 on the day I bought it, and it was ~$1340 the day it matured.  So here I was expecting a check for (1340/556) x $5000 = ~$12,000.  Silly me.  I got a check for $8300 - a $3300 increase (not bad compared to regular CD rates) instead of a $7000 return, so LESS THAN HALF what I was lead to believe.  Bottom line - if you want to invest in precious metals, buy the physical commodity.  Stay away from EverBlank.

4
Comment #4 by Anonymous posted on
Anonymous
In defense of Everbank, in terms of the MarketSafe CD -- they do -- in the smallprint, tell you the "max" interest rate you can get. So in case of Gold - even though it may have gone up a kaziiiion %, you're maxed at say 10%. While their marketing tactics don't really stress this, the small details do.

As somebody who invested with them in their WorldMarket CDs - I will say this: while chasing interest may be something worthwhile - dealing with the tax implication of their product can be a headache. And with that said, I'll probably pass on the "market safe CD" - while it may be a bit more straightforward on a MarketSafe CD than the WorldMarket CD -- well I don't want to dive into it to find out I was wrong, and have to spend an hour on a spreadsheet to determine if the actual rate of return is what I have been actually paying taxes on.

4
Comment #5 by Anonymous #5 (anonymous) posted on
Anonymous #5
Just got my invitation package to invest with EverBank. There were 70 pages of legalese in very fine print. Then there were an additional 50-70 pages specifically for IRAs. Several times during the reading of the fine print my eyes hurt, I finally quit today after 50 pages and never looked at the other book.  To put all that painful reading in a nut shell: Almost everything is my fault, almost nothing is EverBank's fault, but the losses are always mine. And the number of different fees and the prices thereof is truly remarkable. When I opened an IRA at a local bank, I was in and out in about 15 minutes. So glad I found this website half an hour ago.

1