|
With dot-coms in the dumps, lock in steady gains
Now’s the time to look overseas to beat Greenspan’s rate cuts
by Charles R. Wolpoff
Alan Greenspan has finally decided to cut rates. And he’s not done yet.
In the long run, it’s great for the stock market. But not so hot for the rates you get from safe income investments. They’ll be heading down.
Which makes this as good a time as any to look into foreign currency CDs.
I’ll tell you right up front, unlike the typical certificates of deposit, this does have a bit of risk to it. But it also has some advantages you don’t get from the run-of-the-mill CD.
Betting against the greenback
For one thing, you get to hedge your bets against the dollar.
And you often get a higher yield.
You see, certificates of deposit are usually pretty bland stuff. They’re nice places to park a little cash while you’re waiting for the market to calm down, a cozy nook to hide away money you may need in the medium term (3 to 6 months), or a temporary solution for a portion of your portfolio you just haven’t decided what to do with.
But currency CDs are different
In reality, what the bank is doing is buying "futures contracts" on these currencies. This means they have a right to buy the currency at the end of the term of the CD.
But you don’t have to worry about the mechanics. What is important is that you are converting dollars into these currencies, getting in effect CD-type interest for the term of your instrument, then reconverting back to dollars at the end.
You benefit from the higher yields offered by other countries. Plus, if the dollar has weakened during this term, you get a little more return once you convert back to dollars.
Sure, if the dollar has strengthened, your return is reduced. But if all your other money is in dollars, placing a small percentage of your investment portfolio in other currencies for diversification is a shrewd maneuver.
| ACTION ALERT |
|
For more information about this CD, and other currency CDs, contact everbank at 800-926-4922, ext. 1, or by email at worldmarkets@everbank.com.
Not interested in any fancy-pants international currency CDs? Just want to park a little cash while the sharks are still in the water? Try some of these relatively high-yielding CDs:
3-month CDs:
Wingspan Bank.com, Wilmington, DE, annual rate 6.07, annual percentage yield 6.25, minimum deposit US$2500, phone 800-378-2421.
6 month CD:
1st Source Bank, South Bend, IN, annual rate 6.40, annual percentage yield 6.50, minimum deposit US$500, phone 888-258-3150.
|
Many analysts believe that the dollar will be getting weaker in the coming months, and some beaten-down currencies will be rising.
Let’s face it, when the dollar tanks, most of us have no protection.
Sure thing
And CDs offered by banks, even currency CDs, are insured by the FDIC. This insurance does not protect you from currency fluctuations. But it does protect you from bank failures and the like.
Not many banks offer this type of CD. One that does is an online bank called everbank (yes, small "e"). It’s a division of Wilmington Savings Fund Society.
If you’re looking for a currency CD with some extra pizzazz, take a look at everbank’s Currency Opportunity CD. When we checked with them recently, this CD was offering an annual rate of 7.5% percent for a six-month term. Even the higher-rate domestic CDs won’t give much more than 6%. (Whatever you do, when you buy a CD, confirm the rate at the time of purchase. Rates change daily. Of course, once you buy the CD, the rate is locked in for the full term.)
Basket case
When you buy the Currency Opportunity CD, you in effect buy CDs in a "basket" of four currencies: the Euro, the Mexican peso, and the Australian and New Zealand dollars.
Don’t worry. You don’t have to hop planes to destinations across the globe. The bank does it for you.
The high yield comes from the relatively high interest rates in the countries involved, particularly Mexico, where rates are hovering around 14%. In 2000, the peso was one of the best-performing currencies against the dollar.
The minimum investment for a Currency Opportunity CD is US$20,000.
Check out the 247taxes Bureau of 247profits today for more income investing, tax, and privacy strateiges from Charlie Wolpoff.
|
