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EverBank's MarketSafe Evolving Economies CD - Is It a Good Deal?

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EverBank

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

Important Downsides:

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.

FDIC/Financial Overview

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).

  Tags: EverBank, CD rates

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Comments
13 comments.
Comment #1 by Anonymous posted on
Anonymous
Past results are no indicator of future performance, BUT looking backwards 5 years the only one of these currencies that has strengthened against the dollar is COP and then only modestly so. The other three are all weaker than they were in 2008, and INR and TRY are substantially weaker.

10
Comment #2 by Anonymous posted on
Anonymous
Only sharks work at EverBank. Thay are crooks and have all kinds of tricks and hidden fees that are not written anywhere. They put holds on your money for 10 days before and after the CD is issued. They know how to manipulate those CDs with hedge funds so your net gain is $0, all the while they use your money for their own benefits. They ****ed me with foreign CDs and charged unfavorable exchange rates and my net profit became net loss after the conversion.

17
Comment #3 by Anonymous posted on
Anonymous
Please read the CD Term Sheet and see how it defines the "CD Performance" factor in a formula.  This formula has a basic error.  It has two terms reversed which will result in a negative value for each currency that appreciates by the 10 step average that they use.  So nobody can get any earning, even if each currency appreciates.

10
Comment #4 by Shorebreak posted on
Shorebreak
"Been there, done that" with EverBank WorldCurrency CD Baskets. Due to exchange rate fluctuations and the date of maturity a 6-month CD ended up with a loss of $37.00. It's merely a gamble. Besides, I have little confidence in the way EverBank conducts business. Let's leave it at that.

11
Comment #5 by Anonymous posted on
Anonymous
They charge fees to get in, they charge fees to get out, they exchange the currency at the lowest level for the prior week even if the conversion takes place on the day when the dollar is at highest level. Very unethical group of people, they never answer your question with YES or NO, but always say IT DEPENDS and a blah blah talk will throw you away from the original question.

STAY AWAY from them.

13
Comment #6 by Anonymous posted on
Anonymous
To #3, their formula does not have basic error, all of their disclosures have dual meannings so they can manipulate the end results to be in their favor. You never know what you a getting in until is to late. They sent me an amendment after the fact that basicaly said, we can do what ever we want to do now and in future and you already agreed to those terms retroactively.

11
Comment #7 by Anonymous posted on
Anonymous
I also invested with them in the past... I won't trust anything their foreign currency folks say. Stay away :)

9
Comment #8 by Anonymous posted on
Anonymous
They are looking for ignorant people who do not read the fine print and the disclosures, in other words, they want suckers who will lose money. They thrive on the elder Americans with gullable personalities. If you ask questions, they will lie to you straight in face and will say anything that will make you send them a check.

If you complain, they will read you some disclose fine print that you have never heard off and will say: It is on our web page buried under chapter A, section 11, paragraph z, addenda 5 modification 7. Huh!

Any takers?

7
Comment #9 by Anonymous posted on
Anonymous
After reading all these negative comments, I will neverbank at everbank.

7
Comment #10 by Anonymous posted on
Anonymous
To #8, it is extremely 'ignorant' for anyone to get into the intricate foreign currency market as an investment vehicle. Unless you're a George Soros with the ability to move the market, it's more risky than going to Las vegas casino.

7
Comment #11 by Anonymous posted on
Anonymous
Fifteen percent return in the present economy simply is too good to be true. Long ago my father taught me: "If it seems like lit's too good to be true...".

1
Comment #12 by Anonymous posted on
Anonymous
So let me get this straight...their investment accounts are self-directed and you are bashing them for your losses? Sounds like they are the vehicle and the customer is the driver...this means if you don't know where you are goig, then you will get lost.

I have banked with EverBank on both world accts, and my business acct...have not had any issues.  What bank doesn't charge fees for their services, especially investments?  ScottTrade will charge you $9 per trade...is that wrong?

The majority of people complaining on here sound like people who got into investments that they didn't truly understand.

2
Comment #13 by Anonymous posted on
Anonymous
In respose to number 3, the terms are reversed from the typical - (Current Price-Initial Price)/Initial Price - because the securities being tracked are USD/Currency. Because of this fact, the formula seems backwards from how you would typically calculate a gain on an equity.  Their formula is correct - as the value of COP increases, the number reported will decrease as it will take fewer COPs to equal one USD.  It seemed odd to me when I first saw it, but after some basic algebra, everything cleared up.  IP-CP/IP will give the "gain" vs USD for each of the four basket currencies.

1