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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Foreign Currencies As Investment Vehicles

In many people's mind, investment vehicles comes in various forms, with the higher risk, higher returns vehicles being stocks, foreign exchange followed by mutual funds and ETFs, and finally the safest, low returns vehicles are treasuries, fixed deposits and bonds.

Is that really true? And is it a fair comparison for fixed deposits in today's market? That is the question I'm going to answer in this article.

Fixed Deposits, or Certificates of Deposits as known in the United States, is a contract you have with a bank to lend it a fixed amount of money for a fixed period at a fixed interest rate, after which you would get your money plus the interest back into your account.

The interest rates given is usually dependent on the period you place the deposit for, the longer the higher interest. While practically guaranteed, the interest rates are usually pretty low when compared with the returns you can get using other vehicles, which is why it is considered a low risk, low return vehicle.

However, with today's global market integration, it is no longer difficult to move money across countries. In fact, with a click of a button, you can transfer money from China to the United States, or from the United Kingdom to Singapore, using the bank's exchange rates. With this, a whole new arena has been created for those who are looking for good yield and cashflow, all in the same vehicle.

Today, as EUR is still consolidating at 1.36, down from its last peak of 1.60, while the NZD is at 0.71, up from its last bottom of 0.5. Having bought the Kiwi at 0.51 fourteen months back, and earning 4.5% interest per annum, my holdings had increased 40%, while having an annual cashflow of 4.5%. I'm changing my money into the EUR to cash in on the profits while taking advantage of the current depressed price of the EUR, to get an interest rate of 1.25% per annum.

So can Fixed Deposits still be a safe and low return vehicle for investment? The answer is definitely yes. But at the same time, Fixed Deposits can also be used as a cash flow instrument or hedge in foreign currency bets. This kind of investment has been done by locals going to the money changers and holding the paper currencies, but with the kind of global integration right now, you can make money with the paper currency you are currently holding.

So while the basic idea of a Fixed Deposit being a low risk and low return instrument, it can no longer be totally ignored as an alternative instrument for a higher risk, higher return global currency investment.

Ukey Hoo is a self taught passive income investor specializing in Real Estate and Foreign Currencies. He has achieved financial freedom in 4 years while being an employee and has been helping others achieve the same results since 2008. His blog at http://www.communityofwealth.com contains many resources which will help you in your quest for financial knowledge. See http://www.thriveinyourjob.communityofwealth.com for more details of how he became financially free in 4 years.

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