Are you looking for a High Return CD?

Filed in archive Investing on February 2, 2006

Everbank World Market is now offering one of the most low-risk high yield CDs in the world.

Let me give you some background so you understand the whole picture. In one of the safest countries in the world there exist some of the highest interest rates.

As a rule of thumb, usually countries that are safe have very low interest rates. They can be from less than one percent to a high of only two. This includes many of the Scandinavian countries, Europe, and Japan.

But right now, February 2, 2006, the Central bank of Iceland has an overnight lending rate of 12%. And Iceland is the second fastest growing economy of the developed nations in the world. This offers us investors a great opportunity.

Of course this leads to a question that the smart investor needs to ask: If it is so safe in Iceland, why are the interest rates so high? Usually that is the province of banana republics.

The answer to that question is that Iceland has had a history of high inflationary swings. This has caused them to be tremendously concerned about this rearing its head again. There have been times in its past where it has reached as high as 100%.

Because of this the government of Iceland has been devoted to stopping this from ever happening again. The strategy of the central bank has been to raise interest rates immediately when inflation gets close to 4%.

For the last couple of years the interest rates set by the Central Bank have been 5.3%. The problem is that they have been experiencing a housing boom that has been ascending quicker than the U.S. housing market. This, coupled with the rise in cost of natural resources, is causing there to be predictions of inflation rising to 5% in Iceland for 2006.

The Icelandic Central Bank will keep interest rates very high to combat this from happening.

This has provided an excellent investing opportunity for us. What could be better than low risk investments with a high interest rate?
Now investing in Icelandic instruments is nothing new for some of us, but there is a new way to do it. In the past there have been opportunities in Icelandic government bonds.

Now, in addition to these, there is an even easier way to do it. There exists a new Icelandic Krona CD that takes advantage of this situation.

When you buy the CD you are basically agreeing to deposit your money in a Krona-denominated bank account for 3 months. When that period is over and the CD expires, you collect you money plus the interest. You also have the option of rolling it over for another 3 month period.

Is there any risk? Yes. It is connected to the exchange rate. If the Krona falls against your currency, of course your principal will also decline. Of course there is the up side also. If the Krona gains, your principle will increase along with it. Of course the great thing is that no matter what happens in the exchange rate, you will still receive the interest.

One thing to keep in mind on the up side is that the high interest rates will attract a lot of money; this should help to keep the Krona sustainable for quite a while.

Again, Everbank has recently offered this product. Go to their web site and when you get there look under World Currency Accounts and click on Learn More, which will get you to more information. The yearly rate that is being offered is currently 8.24%.

This should be a very safe place for your money. Their minimum investment is $10,000.