About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Pros and Cons of Foreign Currency CDs and Bank Accounts


For those who are worried about the future of the US dollar, bank accounts denominated in a foreign currency might look appealing. EverBank has long offered foreign currency bank accounts. I can't say if these bank accounts would be a better investment than owning foreign currency ETFs. Also, there are other ways to hedge against the dollar such as owning foreign mutual stock funds. When you're considering alternative investments, this Orlando Sentinel article warns against buying into the next "hot investment". It gave an example of a reasonably way to invest in foreign currencies:

in a conventionally aggressive portfolio that is 90 percent stocks and 10 percent bonds or cash, investors could place maybe 10 percent of their "stock money" in mutual funds or exchange traded funds based on precious metals, oil or other commodities or foreign currencies.

Last week we saw one of the important risks with foreign currency investments: a strengthening dollar. Even though EverBank's Foreign Currency CDs are FDIC insured, there's no insurance against loss from currency price fluctuations.

The best example of currency risk happened in 2008 when some EverBank customers had major losses on their EverBank Icelandic Krona CDs. This was when Iceland's financial markets crashed. One customer described his loss in this blog post at OpenMarkets.org. He reported that his CD was closed early and the bank converted the CD from Kronas into dollars at an exchange rate that was very unfavorable.

Another issue with these foreign currency CDs is the cost of the currency conversions. Here's what EverBank states regarding this:

Currency exchange rate will generally be within 1% of the Market Rate that EverBank determines in its judgment to be available for that particular currency at that time.

It should be noted that you can let the CDs be rolled over in the same currency without conversion costs. So if you keep the CDs for several years, this currency conversion cost has less impact.

With these risks and downsides in mind, there are some benefits. In addition to the gain from a falling dollar, interest rates are much higher. EverBank offers some foreign currency CDs with interest rates much higher than what you can get with U.S. bank CDs. Below is a sample of some that are listed at EverBank's WorldCurrency CD page.

Rates as of 5/9/2011:

  • Australian dollar 12-month CD: 3.63% APY
  • Brazilian real 3-month CD: 3.03% APY
  • Indian rupee 3-month CD: 3.55% APY
  • South African rand 6-month CD: 3.68% APY

Choosing currency accounts from larger countries and not limiting accounts to one currency can help reduce risks. That's why EverBank offers the WorldCurrency Basket CD. I did a review of this World Currency Basket CD a few years ago.

There are other banks that offer foreign currency bank accounts. I reviewed a few of these in this January blog post.

Related Pages: CD rates

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  |     |   Comment #1
Here is WSJ's Chuck Jaffe's rather dim view on another Everbank hybrid CD product:  http://www.marketwatch.com/story/commodities-cd-wont-live-up-to-its-hype-2011-04-15
  |     |   Comment #2
EverBank is run by crooks, need I say more.....

Well, I had few accounts with them few years back and they rob me blind on the conversion rate, on commissions,  on delays to get in and out, on waiting to receive the checks back, on delays of posting interest received and so on.

According to my accountant I lost money on my $500K investments with them and the hustle dealing with them was impossible to cope with. I closed all of my foreign CDs and MM and some exotic stock market CDs accounts and after 4 years of investing with them, at the end I wind up at the same amount I started with.
If you have guts to jump in such adventure, be my guest,
It is not the products that I’m afraid of, but the people that are geared up for their own benefits not yours. They hide behind the FDIC insurance policy which is mining-less, since your principal is always at risk and has nothing to do with FDIC.
FDIC kicks in only if the country you are investing in cease to exist.
  |     |   Comment #3
Actually #2, FDIC insurance won't even help you there. If the country ceases to exist, that is merely going to result in the market value of their currency going to zero (sort of like what happened to Iceland, but on a worse scale) and the FDIC insurance does not protect against fluctuations in the currency market.

All the FDIC insurance does is make sure that if Everbank goes bust, the new bank will have to give you up to $250K of your money back.
  |     |   Comment #4
This is not an article about foregin currency CDs it's an article about Everbank. The former would be an interest article to read but this is not it.
  |     |   Comment #5
It's all about timing. I had a 3-month CD, a few years back, denominated in a diversified basket of foreign currencies. At maturity, it had done well due to the dollar going down in relation to the other currencies. I renewed the CD for another 3-month period and you guessed it. The dollar went on a roll and at maturity I had lost money for that period. For the entire 6-month cumulative period I came out about even on the whole deal. In actuality though, I lost money due to not allocating the funds into a regular 6-month CD, or better yet, a high-yield savings account that would have at least made an interest gain and remained fully liquid. Like I wrote, it's all about "timing".
  |     |   Comment #6
To Anonymous - #3,

Actually #2 is correct,  FDIC does not cover your principal through EverBank since the money are out of the country in a sub-account held by a third party in that foreign country.
If EverBank close the doors, FDIC will manage your account as long there is some principal left in that account, if the principal is $0.00 FDIC is not obligated to pay any money to you or as #2 said it ” If the country cease to exist” you have better chance of collecting some of your principal.
  |     |   Comment #7
Let me see, if the 3mo foreign CD pays let say 3% and the dollar goes up just few pennies or the foreign currency loses just few pennies and your 3 month interest is wiped out just from that variable, plus the foreign exchange fees paid to EverBank to get in and or exit, plus delays in opening and closing the account......and so on, without FDIC insurance......are we that stupid to make EverBank collect the profit and we pay the piper?
  |     |   Comment #8
I agree the hybrid CD makes no sense. My question is how would getting aa Australian CD at 3.63% compare to an Australian foreign currency ETF? Yes the CD has a currency conversion rate of 1%, but the foreign currency ETF would have currency conversion costs as well. Does the foreign currency ETF pay any interest at all? Which would do better over a 3 year period?
  |     |   Comment #11
Right now is a very difficult time to decide on what to invest in that one would consider to be safe.  Everything, including foreign currencies, are at their highs.  Stocks, bonds, commodities, foreign currencies - you name it, they are all at their highs.  So where does one go for safety these days?
  |     |   Comment #12
To Anonymous - #8, getting AU $ CD or ETF at this level is suicidal, AU $ is at 36 years high against the US $ and betting on it is like betting against you, for sure you will lose money and the principal is at stake.
If the US $ goes up, in 3 years when you exit the AU $ CD, will cost you an arm and leg plus all the exchange fees attached to the deal.
ETF would be better bet against the US $ depreciation in value, but again it is a bet, nothing is for sure unless you have billions of $s to manipulate the rates and exchanges by creating your own hedge fund or creating buy orders when you are ready to cash out.

  |     |   Comment #13
To anyone thinking opening foreign CD,
The odds are stacked against you, that 3.6% is a variable CD not fixed.
Dealing with broker (EverBank) is not telling you the whole truth, they just need more suckers to create commissions for them only. Either way they win and you may lose your shirt.
  |     |   Comment #14
I have been thinking about this and have been considering how to position some of my money because I have a real fear that the Fed is actively devaluing the dollar and they will continue to do so for a considerable time. I have been looking at ETFs and emerging market bonds, but have not pulled the trigger because, like a previous poster said, prices seem to be at an all time high. This is probably the most difficult investment period I have ever seen.
  |     |   Comment #15
To #11 -

Agree with you totally. For me, the only 'safe' investments, as a conservative investor, are CD's. Not a great return, but not subject to the price girations and/or management fee ripoffs of other investments. The keyword here is 'conservative' investor and, for the time being, we are being hosed. If we can preserve as much of our principal as we can, maybe eventually better times will come? In any event, at my age, I am not about to be forced into the speculative type investments that the suits are trying to sell us. I would rather lose my buying power a bit at a time rather than all at once.    

  |     |   Comment #16
Even if you buy such foreign CD, you will not see any benefits at all, why you ask, I had world basket Foreign CD last year and did not make a penny.
First EverBank held my money for two weeks in a sub account not earning interest, because they pretend to buy those CDs on Fridays only, which I missed because of the hold, but in reality EverBank make me miss by putting hold on the check for 6 days.
Then, they pretend that they bought the CD at the worst exchange rate for the week and then pocketed the difference and on top of that took 1% commission from the total invested.

When the monthly interest was posted, I noticed that they again posted the conversion from basket of currency to Dollars at the worst exchange rate for the week and pocketed the difference.

Exchange rate changes by the minute not weekly averages posted by EverBank.
In other words they crate their own float and scheme you that way.

When I closed the account, guess what, they posted sold at the worst exchange rate for the week and again pocketed the difference and took another 1% from the total.

My $100K wound up at $99K at the end of the year. I paid $2000 in commissions and only made $1000 in net interest.  Beware of EverBank, they are your enemy .
  |     |   Comment #17
Thanks everyone for posting your experiences with EverBank -- these postings have been invaluable.  I had been considering an Everbank foreign CD but no longer.  I could never get over the feeling that there was too much "wiggle" room for EverBank to play with fees and coversion rates so I haven't invested with them.  Never will now.  Thanks again.

  |     |   Comment #18
Everbank's foreign CD way too risky, knowing how the bank acts when things begin to unravel:

  |     |   Comment #21
As I am a novice investor, I was also considering opening an account in a foreign currency with Everbank. But after reading this blog, I think i will stick with the US and take my chances of the devaluating $. Just ****ed at myself for not buying some Gold a year ago!
  |     |   Comment #22
Anonymous 21, I'm in the same boat but I feel heartened by writers such as Gary Shilling who shuns overheated commodities in favor of the US dollar in a deflationary crisis.  With a severe downturn now looking more of a certainty, I agree with Larry Edelson that there will be a sharp pullback in precious metals especially silver.  With a stock market nose-dive many people will have to sell their gold positions and inflation fears will be temporarily eased.  This might provide a chance to get into gold or silver at a lower price.  Good luck
  |     |   Comment #23
I contacted EverBank yesterday, and I thought it was wierd that they don't post their exchange rate daily and there is no tool to buy CDs online.  I didn't realize how much they are taking advantage of fees.  Thank you for the info.  Foreign CDs are popular in other countries since saving account's interest rates have been very low.  I hope better banks offer these services.
  |     |   Comment #24
Thank you all for your comments on The cd's from Everbank.  I was also considering them but will not even call the company after reading these posts.  They sound like a scam.
  |     |   Comment #26
Besides Everbank, one can also invest directly in a foreign account in USD by visiting in person the bank of his choice upon account opening. The return will be higher than at Everbank and some countries do offer Depository insurance as well. Many foreign banks offer USD accounts in order to attract foreign investment, thus there is no currency risk. Credit risk can be assessed by looking at the bank's ownership structure and/or published credit rating. You can take a look at http://www.globalbankpilot.com/.

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