Dedicated to Deposits: Deals, Data, and Discussion
Featured Savings Rates
Featured Accounts
Back to Comments and Questions

International CDs

Tuesday, December 3, 2013 - 2:09 AM
Hello,

 

I'm considering opening HSBC Advance accounts in Brazil, Turkey, India and Indonesia (all investment grade countries - for what it's worth) and buy 12 month CDs or, as HSBC calls them, time deposits. The yields are all very high being over 8%. I could buy short time sovereign bonds through a US broker as well but of course that adds currency risk. And if I want to avoid currency risk with short term bonds it will hurt yields, reducing them by 50% or so. But when opening accounts in these countries themselves and buying 12 month CDs in their local currency at least in theory I do get this 8-11% yield without the currency risk as I can either renew the CD at maturity or cash out in local currency on the local banking account. With cash sitting in local accounts I can either wait for even better interest rates (market crash, inflation, etc) or convert into dollars once the exchange rate is good enough. Doing so SEEMS to be the best of best worlds. But is it?

 

Other options would be to simply buy sovereign bonds in local currencies through a US broker and hedge the currency risk. But then of course I can't use the money that I use for hedging, limiting my total yield. And the other idea would be to open the same accounts as mentioned but not trade CDs through them but sovereign bonds in the local currency. When reaching maturity they won't be automatically converted to USD but simply paid out in the local currency, again avoiding the currency risk like described before.

 

Since I haven't used this concept before my questions are as follows:

 

A) Which of my investment options seems the best?

B) Am I missing any important risks or costs?

C) Does anyone have experience with investing in this way?

D) Is there anyone out there who has HSBC deposit accounts in the countries mentioned and, if so, what are your findings until now?

 

Any responses would be highly appreciated.

 

drftr
2
drftrdrftr5 posts since
Dec 3, 2013
Rep Points: 9
1. Tuesday, December 3, 2013 - 7:39 AM
Read these articles first:

Foreign-currency CDs: tempting and risky

http://www.bankrate.com/finance/investing/foreign-currency-cds-tempting-and-risky.aspx

Overseas Government Bonds Tempt US Buyers

http://www.bankrate.com/finance/i...yers-1.asp
5
ShorebreakShorebreak2,378 posts since
Apr 6, 2010
Rep Points: 12,695
2. Tuesday, December 3, 2013 - 3:16 PM
Articles over 2 1/2 yrs old.

I probably wont go this route but

Who are the "safer" players overseas now?
2
RicochetRicochet131 posts since
Jan 19, 2010
Rep Points: 358
3. Tuesday, December 3, 2013 - 11:33 PM
Thanks for the links Shorebreak. I've read similar articles but unfortunately they don't answer questions about hedging or opening overseas accounts to avoid currency risk. If you have any opinion on these subjects I'd be highly interested. Thanks again!

drtfr
1
drftrdrftr5 posts since
Dec 3, 2013
Rep Points: 9
4. Wednesday, December 4, 2013 - 12:20 AM
drft, do you have a link for the international CD rates?

Do they specify how much the fees are? I don't really follow why you don't think there is any exchange risk. At some point you will want to convert the money back into dollars and it may not be at the rate you bargain for. When you do convert the money, is the exchange rate determined by HSBC or a reputable index? There may be a big spread, allowing them to take a huge fee at your expense.
1
loulou521 posts since
Aug 3, 2010
Rep Points: 3,239
5. Wednesday, December 4, 2013 - 3:46 AM
I'm not aware of a comprehensive HSBC site with all the rates collected so you'll have to visit the individual country websites. But you can get a good indication on www.deposits.org which I think is quite up to date.

Unfortunately fees vary per country but on the individual websites there's often a link to a PDF with the latest exchange rates and fees. I'm not considering exchange rates to be a risk because for the countries mentioned they're very low already historically speaking. But what's more important is that I don't need the money once the CD matures so the money will just stay in the local bank account in the local currency. Then it's up to me to decide when to convert to dollars (I will open dollar accounts at these banks at the same time). Could be straight away when maturing and then just wire my money out of the country (no special procedure for money coming from a CD). But I could also decide that exchange rates are not in my favor at that very moment and buy another CD or just keep the money in a normal savings account in that country, which would still pay you a lot more interest than in the US.

drftr
2
drftrdrftr5 posts since
Dec 3, 2013
Rep Points: 9
6. Wednesday, December 4, 2013 - 7:48 AM
Here is a 'Foreign Investors Guide' for a particular country. This example is for Serbia.

NBS | Foreign Investors Guide
3
ShorebreakShorebreak2,378 posts since
Apr 6, 2010
Rep Points: 12,695
Reply