Review: Flex CD Offers High Yield if the Dollar Tanks Against BRIC Currencies

by Darwin on November 21, 2009

The Flex CD (MarketSafe BRIC) offered by Everbank is a unique financial innovation for this low interest rate environment with an ever weakening US Dollar in terms of foreign currencies.  Everbank offers a flex CD they refer to as the BRIC MarketSafe CD.  Basically, if the US Dollar strengthens against the currencies of the BRIC (Brazil, Russia, India, China) economies, then you are guaranteed to have your principal protected over the term, so you can’t lose money.  However, if these currencies continue to rally against the dollar, which has been the trend of late, the flex CD can appreciate in value significantly.  If it’s any consolation, as evidenced by this graph of the US Dollar Bear index, the greenback has declined 17% since the March lows when the world believed we were on the brink of disaster and investors fled to safety in the dollar.  However, as it became evident that foreign economies were more likely to strengthen coming out of the crisis, the shift out of the dollar has been swift and momentous.  Imagine a 17%+ return on a CD?


MarketSafe BRIC Flex CD Basics:

  • 3 Year CD Term
  • $1,500 Minimum Deposit
  • FDIC Insured
  • Principal Protected
  • CD Returns based on 1/4 each of Brazil, Russia, India, China currency parity with USD

Based on the EverBank Term Sheet (pdf here), the following hypothetical calculation was provided (completely feasible given the current economic malaise in the US, especially with trillions in debt moving in the wrong direction):

Payoff Example:

Upon maturity, the USD has weakened 10% against BRL, 15% against RUB, 5% against INR and 1% against CNY.
The payout would be as follows:
= Max [ 0, (1/4) * (BRL performance) + (1/4) * (RUB performance) + (1/4) * (INR performance) + (1/4) * (CNY performance) ]
Or calculated as:
= Max [ 0, (.25) * (.10) + (.25) * (.15) + (.25) * (.05) + (.25) * (.01) ] = 7.75%

While 7.75% may not sound enormous (and remember, this is hypothetical and Everbank would be remiss to provide outlandish claims), it is higher than any other standard 3 year CDs out there and in the event of a dollar collapse or even continued weakness, which will over time decrease the standard of living in America, the return could be quite significant.

What better way to combine principal protected FDIC insured funds with currency risk management?

Check out this MarketSafe BRIC CD at EverBank:

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