Financier R. Allen Stanford makes investors an enticing offer: He sells supposedly super-safe certificates of deposit with interest rates more than twice the market average. His firm says it generates the impressive returns by investing the CD money largely in corporate stocks, real estate, hedge funds, and precious metals.
As you might expect after the Bernard Madoff scandal, there is a lot of suspicion, and federal and state regulators are investigating. According to the article, Stanford's current one-year CD has a rate of 4.50%. This is one percent higher than the best CD deal from a federally insured bank (3.50% 11-month CD at Doral Bank Direct).
Stanford International Bank is part of Stanford Financial Group that offers the CDs. It's a foreign bank that's based in Antigua. Thus, it has no FDIC insurance. According to the bank it's chartered under the laws of Antigua and Barbuda, and it's regulated by the Financial Services Regulatory Commission and the Ministry of Finance.
Foreign banks have been advertising high CD rates in the US for years. One of these banks that has been around for a long time is Millennium Bank that's based in St. Vincent. I first researched this bank in October 2005. Recently, several readers have mentioned high CD rates being offered by Mexican banks.
I have no idea how safe and sound these institutions are. As we learned with Madoff, things can go well for investors for many years before major problems arise. Many of these foreign banks have some regulatory oversight by foreign governments, but it's difficult to know the extent of the oversight. That's why I stick with US banks and credit unions which are regulated by state and/or US federal agencies.
If you see a website advertising a very high rate on a certificate of deposit or some other bank-like account, you should first determine if the website is from a FDIC or NCUA insured institution. Both FDIC and NCUA are agencies of the US federal government. FDIC covers banks and NCUA covers credit unions. I have more details in this 2007 post on verifying FDIC or NCUA membership. I also discuss the benefits of FDIC and NCUA membership. It's more than just deposit insurance.