Update 10/3/2013: EverBank is offering another chance to open a MarketSafe Evolving Economies CD. The new deadline for funding is October 9, 2013.
EverBank is again offering a new MarketSafe CD. Its latest version is called the MarketSafe(R) Evolving Economies CD, and it’s available through September 11, 2013. 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 5 years if you avoid early withdrawals.
If you're comparing this CD to investing in currency ETFs or mutual funds, the main advantage is the principal protection. However, you pay a price for that protection in the loss of some of the potential upside performance of the currencies. One change from past MarketSafe CDs is that this one supposedly offers more upside potential and a smaller chance of 0% return.
Here’s what EverBank announced in its August 15th press release:
EverBank announced today the launch of the five-year MarketSafe® Evolving Economies CD, which combines the market potential of the Colombian peso, Turkish lira, Indian rupee and Mexican peso. The CD offers 100 percent principal protection and a unique jump-note structure that ensures an upside payment of at least 15 percent if the final return of the CD is more than 0 percent.
EverBank is highlighting the 15% minimum upside potential. This almost sounds like they’re guaranteeing a 5-year return of 15% (close to a 3% annual return). But it only guarantees this if the currency indices outperform the dollar. If the currency indices underperform the dollar, your return falls to 0%.
EverBank is also highlighting that there’s no limit on the CD's upside potential. It should be noted that the market performance is based on the average of 10 semi-annual price dates. That essentially has the effect of limiting the upside potential.
EverBank's CD Terms Sheet has the details. Here's a summary:
- Funding Deadline: 9/11/2013
- Issue Date: 9/23/2013
- Maturity Date: 9/21/2018
- Minimum Deposit: $1,500
- Reference Index: Fixing price of the 4 currencies: Colombian peso (COP), Indian rupee (INR), Mexican peso (MXN), Turkish lira (TRY)
- CD Term: 5 years; early withdrawal is not permitted
- Fees: no account fees
- Pricing Dates: 10 semi-annual price dates
- Participation Factor: 100%
- Market Upside Payment: If market performance is greater than 0%, the market upside payment is calculated as: Participation factor * the greater of: 15% or CD performance
- CD Final Payment: 100% of your deposited principal plus the Market Upside Payment OR 100% of your deposited principal if no gain in market performance
Unlike most traditional CDs, this MarketSafe CD allows no early withdrawal. 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 5.2.13 of the EverBank's Terms & Conditions document:
Tax Considerations. For U.S. 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, appreciation 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.
Is It a Good Deal?
There’s a chance that the return for this 5 year CD will be 0%. The other possibilities are a 15% return and a return above 15%. I don’t have any real sense of these probabilities. So I can’t say if this is a good deal. Perhaps if the CD had a minimum return guarantee higher than zero percent, it might be a good deal.
Other EverBank Accounts
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.
If you prefer to stay with conventional deposit accounts, EverBank is still offering 1.10% for the first 6 months on its Yield Pledge Checking and Money Market Account (up to $100K on the checking and $50K on the MMA). The ongoing rates are not the best, but they have remained fairly competitive. EverBank does have some nice account features such as its online check deposit.
EverBank is one of the larger internet banks with $18.31 billion in assets. The bank has an overall health score at DepositAccounts.com of 4 stars (out of 5) with a Texas Ratio of 24.70% (average) based on March 2013 data. Please refer to our financial overview of EverBank for more details. EverBank has been a FDIC member since 1998 (FDIC Certificate # 34775).