Many banks in countries outside the U.S. are offering more attractive current interest rates than banks in the U.S. Investing in a global certificate of deposit (CD) can help you increase income and diversify your portfolio, and the higher yields are certainly tempting to investors seeking the best CD rates.
However, depositing money with a bank outside the U.S. carries risk. A very large consideration is that no Federal Deposit Insurance Corporation (FDIC) insurance applies on a deposit made with a bank outside of the United States. In addition, currency fluctuation risk exists when converting foreign funds back to U.S. dollars.
However, there are ways you can still diversify your savings into global currencies without dropping FDIC insurance. Large global banks like HSBC Bank that do business in the U.S. offer online savings accounts, CDs and money market accounts that are denominated in foreign currencies. Customers of these banks can convert between different currencies online if they meet residency requirements.
EverBank foreign currency accounts
EverBank, a FDIC-insured bank based out of Jacksonville, Florida, also offers investors a way to easily invest in foreign currencies. Its WorldCurrency CDs are denominated in currencies from different countries. Investors can open and fund their account online in a matter of minutes. There is a minimum opening deposit of $10,000 for single currency CDs.
Investment return when converting back to US dollars
EverBank's WorldCurrency CDs pay interest based on a fixed rate that varies depending on the country. The net return for a WorldCurrency CD investor will include any potential appreciation or depreciation in the selected currency or currencies when converting back to U.S. dollars.
For example, if an investor purchased a certificate of deposit with an annual rate of 4.50 percent, but by the maturity date the U.S. dollar had appreciated 3 percent versus the investor's selected currency, then the total return would be a little less than 1.5 percent when converting back to U.S. dollars. On the other hand, if the selected currency had appreciated 3 percent versus the U.S. dollar during the term of the CD, then an investor's return would be slightly more than 7.50 percent after converting back to U.S. dollars.
Everbank WorldCurrency CD Baskets
Everbank also offers WorldCurrency CD Baskets, which work the same way as its WorldCurrency CDs but are comprised of multiple currencies linked by a common theme such as economics or geography. WorldCurrency CD Baskets have a minimum opening deposit of $20,000. An example is the Global Power Shift CD Basket that is denominated in the currencies of the resource-rich countries of Australia, Brazil, Canada and Norway. Another multi-currency CD that is offered by EverBank, the Petrol CD Basket, is denominated in the currencies of oil-producing countries, including the British pound, Mexican peso and Norwegian krone.
Investors interested in EverBank World Currency CDs should consider both the interest rate and the potential currency fluctuation when evaluating their investments. FDIC insurance only applies toward the solvency of EverBank and does not protect against any currency fluctuations on WorldCurrency CDs.
Visit MoneyRates.com's EverBank review for more information on current EverBank offerings.
An EverBank deposit account is insured by the FDIC for up to $250,000 per depositor. FDIC insurance covers against loss due to the failure of the institution, but not market-related fluctuations including changes in currency prices. The amount of deposit insurance available for funds denominated in foreign currency will be determined and paid in the United States dollar equivalent of the foreign currency on the institution's date of default. As with all investments, investors can lose money, including principal, due to currency fluctuations, over the term of ownership. Please only invest with money that you can afford to risk and as part of a broadly diversified investment strategy.