World Currency Index CD From Everbank!

[This post is written and copyrighted by FIRE Finance (http://firefinance.blogspot.com).]

Everbank has created some great certificates of deposits (CDs) which will help us diversify our investment portfolio. At present almost all of our investments are dependent on the US dollar. With the U.S. dollar hitting an all-time low versus the Euro in July 2007, EverBank’s latest offering "World Currency CDs" is a great option for investors seeking to diversify their portfolios amidst a devalued dollar.

Today we profile Everbank's World Currency Index CD. This is a single CD comprising of multiple currencies each strategically designed to benefit from a specific regional strength and/or geopolitical and economic development.

Features

• Everbank's Online Link with Details

• Available in 3 and 6-month terms.
• Returns based on a fixed interest rate and potential appreciation in the select foreign currencies of the index versus the U.S. dollar. However if the selected currencies lose value versus the U.S. dollar, you could experience a loss of principal.
• Choose from a range of diverse CDs comprised of three or more foreign currencies.
• No monthly account fees.
• Open with a competitive minimum deposit of $20,000.
• FDIC insured.
  

Rate Chart

• Commodity
• Combination of currencies from countries that depend on the sale of commodities to fuel economic growth: 25% Australian $, 25% New Zealand $, 25% Canadian $, 25% South African Rand.
• 3 month APY: 5.51%
  
• 6 month APY: 5.47%
  
• Euro Trax
• Combination of European currencies from countries with current account surpluses: 40% Euro, 20% each of Swiss Franc, Swedish Krona & Norwegian Krone.
  
• 3 month APY: 2.17%
  
• 6 month APY: 2.21%
  
• Pacific Advantage
• 40% New Zealand $, 20% each of Japanese Yen, Singapore $ & HongKong $.
  
• 3 month APY: 2.93%
  
• 6 month APY: 3.02%
  
• Pan-Asian
• Combination of Asian currencies: 40% Australian $, 20% each of Japanese Yen, Singapore $ & HongKong $.
• 3 month APY: 2.68%
  
• 6 month APY: 2.77%
  
• Petrol
• Combination of the currencies of the three largest non-OPEC oil producers: 33.3% each of Norwegian Krone, British Pound & Mexican Peso.
• 3 month APY: 3.85%
  
• 6 month APY: 3.89%
  
• Prudent Central Bank
• 25% each of British Pound, Euro, Australian $ & New Zealand $.
  
• 3 month APY: 4.32%
  
• 6 month APY: 4.30%
  
• Viking
• Combination of Nordic currencies: 30% Swedish Krona, 30% Danish Krone & 40% Norwegian Krone.
  
• 3 month APY: 2.27%
  
• 6 month APY: 2.31%
  
• World Energy
• 25% each of British Pound, Canadian $, Australian $ & Norwegian Krone.
• 3 month APY: 4.32%
  
• 6 month APY: 4.30%

How does this CD work?

To understand how this new CD works let us follow through with an example. With the value of the U.S. dollar sliding against many of the world's currencies, Ann thought it prudent to diversify her investment portfolio with foreign currencies. Her interest in the growing economies of the orient led her to open a six-month Pan-Asian Index CD (see definition above). With a strategic blend of the Australian dollar, Japanese yen, Singapore dollars, and Hong Kong dollars, she felt this CD would provide a good hedge for her investments [1].

Example Assumptions:

• U.S. dollar deposit amount $20,000
• Currency conversion rate .02429 USD/Pan-Asian Index Unit (or 13.46 Pan-Asian Index Units/USD)
• Holding Period 180 days
• Holding nominal interest rate 3.75% APY (paid in Pan-Asian Index Units)
• Holding CD principal in Pan-Asian Index Units 823,384.11
• Holding CD earning results in Pan-Asian Index Units 15,226.97
• Ending foreign dollar amount in Pan-Asian Index Units 838,611.08
  

Let's see how Ann fared six months later with three hypothetical scenarios.

• Scenario 1: The Asian economies continue to grow, while economic and geopolitical forces weigh on the US dollar. Mary realizes a profit in her investment as all four currencies, which make up the Pan-Asian Index, gain vs. the US dollar.
• Currency Conversion Rate: .02495
  Total Return: $20,923.35
  Total % Return 9.23%
  Net Gain: $923.35
  
  
• Scenario 2: The Japanese yen and Australian dollars appreciate, but a political coup in Singapore causes its currency to lose value—offsetting the gains by the yen and Australian currency. The Hong Kong dollar remains stable. Mary's investment experiences a small gain.
  
• Currency Conversion Rate: .02407
  Total Return: $20,185.37
  Total % Return 1.85%
  Net Gain: $185.37
  
  
• Scenario 3: A political coup in Japan destabilizes the entire Asian region. While the Australian dollar holds its value, Japanese yen, Singapore dollars, and Hong Kong dollars all fall against the U.S. dollar. Mary experiences a loss of a portion of her principal deposit.
• Currency Conversion Rate: .02250
  Total Return: $18,868.75
  Total % Return -11.31%
  Net Loss: -$1,131.25

The chart below shows the earnings of this CD (through interest and conversion rate gains/losses) for the various scenarios described above.

[Please click on the above picture to zoom on it]

This CD from Everbank makes it easy to participate in the complex world of foreign currencies. It can be also useful for hedging your US $ investments or rounding your long term portfolio strategy by diversifying it with foreign currencies.

But it has its own share of risks. While the FDIC insurance will protect you upto $100000 from bank failure, it does not guarantee protection of your principal. Your principal will be susceptible to capital loss or gains due to currency price fluctuations. Several geopolitical and economic influences can affect a currency's value. Everbank recommends that you carefully consider both the potential for currency appreciation (or loss) along with the rate of interest that you may earn when assessing the use of foreign currency products as part of a broadly diversified investment strategy [1].

Everbank puts in lot of effort to constantly come up with new products (1, 2) which aid in diversification of our portfolios. Our good wishes are ever with Everbank.

References

[1] Everbank: "Broadening Your Horizons Is Important To You - World Currency Certificates Of Deposits."

Image Source(s): iStockPhoto

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