How to Invest in Foreign CDs

With the historically low interest rates we are currently experiencing in the US, bank issued Certificates of Deposit (CDs) are also at historically low yields. Since 1-year CDs are yielding a dismal 1% here in the US, many investors want to know how they can invest in foreign CDs that have much higher yields.

There are foreign countries, such as Australia, that have established economies and a solid banking system, yet you can get more than 3.5% on that same 1-year CD. In less established economies, such as Brazil, the yields can be over 7%. But, how can an American buy a foreign CD? This can actually be done through a few US banks, which are covered by FDIC insurance.

It is important to note that buying international CDs through an American bank does carry some risk. The risk lies in currency fluctuations. When you buy the CD, your US dollars are converted to the currency of the country in which you are investing. When the CD comes due, your investment is then converted back into US dollars and returned to you. If during that time frame the foreign currency depreciates against the US, you could lose money. The FDIC insurance protects you in case the bank fails, but it does not protect you from currency fluctuations.

To help protect against currency fluctuations, there are foreign CDs that are diversified into 4 or 5 different countries. These CDs will have lower yields than choosing one from a single country, but the yields are still more than double what you will receive at your local bank, and the currency fluctuation risk is significantly lower.

The flip side of the currency conversion risk is that there are opportunities for additional profits, if the foreign currency increases in value relative to the US Dollar. If you have a good grasp on foreign exchange rates and the direction of the value of the US dollar relative to other currencies, you should buy individual currency CDs. However, if you are not well versed in currencies, we recommend investing in one of the diversified CDs that are invested in 4 or 5 different countries.

Investing in foreign CDs is not something you'll be able to do at your local bank. The best way for an American to do this is through EverBank, which is headquartered in Jacksonville, FL. EverBank offers all of their investment products and accounts online, so it's easily accessible to anybody.

To learn more about EverBank's foreign CDs, and to see the current yields of CDs around the world, click on the following link: Foreign CDs

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