CDs in US$ safe?

[gerd]

To the experts:

Do you think CDs in US$ are safe in the next years?

[Ken]

It would help if you gave a little more information. Are you talking about CD's in US$ that you purchase from a bank in the Dominican Republic? Also, do you have a specific bank in mind?

[gerd]

I meant CDs in US$ from Dominican Banks in general. Or, if you have enough insider knowledge to say which banks are less safe than others, be free to do so.

What I'm worried about is getting to a situation, like it happened in Argentina or Uruguay, where banks simply closed down and your savings were lost.

Or are the CDs in US$ treated like they were accounts in the US?

Thanks for all information!

[Paul Thate]

There is absolutely no diference in safety
if you have an account in pesos or dollars with a dominican bank.
If the bank goes under you have lost everything regardless in what currency,
Also all the banks foreign or local need to follow instructions from the central banl or goverment whoever issues the rules here.
So like in Argentinia if the goverment closes the banks Scotia bank and Citi need to close their doors as well.

As which bank is the safest here.
in my opinion safest is Citi bank then Scotia.
then banca de Reserva as it is the central bank.
Banco Populare.
BHD and Banco Credito
then Baninter .

Where progresso belongs no idea.

[GNYC]

In my opinion if you want to keep funds in USD keep it in a US bank where you have FDIC insurance.
Baniteer and Banco Popular were only paying 4% on US accounts last month. You can get over 3% in some US banks on CD's or even liquid money market funds.

I would use a portion of those funds buy Pesos and purchase a CD at a Dominican bank in local currency.

My question to the experts is how confident are you that the local banks are secure.
What percentage of your funds would you keep in local banks and what percentage in the US if any.

Also Paul stated his opinions as to what banks are the safest.
Do the CD rates vary alot amongst these DR banks due to the possible default risk of each?
Gotta believe Citbank pays less due to its affilations.

GNYC

[Paul Thate]

yes citi and scotia pay north american rates .
they they dont need to pay extra for the risk.
pending which risk agency you follow those banks are triple A.
Dominican banks dont even rate on the scale of International banks,
Re DR banks credit risk. they pay better according the risk
Baninter pays the best rate they need to to attract more funds .
banco pop pays the worst.They dont need to pay up.

[jojocho]

Put your eggs in different baskets.

Interest rates for US$CDs in some dominican banks are currently as high as 12%. That's a lot. And in pesos as high as 26%. That's a sh...load!! These opportunities are fantastic if you're willing to bear the risk. Remember that in financial markets you're expected rate of return is usually directly proportional to the risk that you want to undertake.

If I were you I would split my money and get a US$CD with a Dominican Bank in the DR, and another one in the US.

Edited to add:

Then again, maybe you would like to diversify even further and make some Euro investments.

[GNYC]

jojocho

Could you advise what banks quoted those rates on USD and RSD CD's.
And the terms.

I was told by Baniteer and Banco only 4% on US accts but maybe that was a savings acct as opposed to a CD.

GNYC

[ricktoronto]

Originally posted by jojocho
And in pesos as high as 26%. That's a sh...load!! These opportunities are fantastic if you're willing to bear the risk. Remember that in financial markets you're expected rate of return is usually directly proportional to the risk that you want to undertake.

Since the peso has gone from 16.5/$1 to over 20/$1 that is a 21.3% devaluation against the US $ in under a year. So a 26% annual rate on a CD may in fact represent nothing more than (barely) keeping up with the purchasing power of the dollar due to the decline in the pesos value.

If you received 26% a year ago your real return at this point is down to 4.7% and the year is not up yet.

So a 7% US CD has a higher real return in pesos than a 26% peso CD does. If you are buying peso commercial paper and comparing it to relatively low risk bank CD's then you are taking on market risk and more counterparty risk in exchange for a negative real return, which is not too smart.

So it isn't a Sh..load but more accurately, the sh.. part is right.

[ricktoronto]

Originally posted by GNYC

I would use a portion of those funds buy Pesos and purchase a CD at a Dominican bank in local currency.

If you want to lose money that is.