Tuesday, September 18, 2007

Put Your Money in a Foreign Bank Account at 10% Interest - No Don't

Many foreign banks have deals for those with American Dollars to put their money in accounts with a guaranteed interest of ten percent, even backed by Lloyds of London. Is this a good idea? Where else can you earn 10% on your money leaving it in a bank?

Well, it sound like a good idea at first and some banks really need US Dollars because they are a trusted currency and used to secure International Shipment Guarantees; so they are willing to give ten percent because the shippers only trust the US Dollar. Meanwhile, your money sits in the foreign bank tied to the local currency exchange.

In my personal opinion that sounds scary. If the currency is stable that is one thing, but I have watched people lose money doing that. If you make 10% great, but they could have a huge devaluation, nationalize all bank accounts, anything like that. What if you make 10% but if the devaluation is 22% less? So you have ten percent more money but that money is worth 22% less - see why it is risky?

In my personal observation; I have watched huge US or World Bank Investments in nations, running things up until all that money was siphoned out quickly, crashing the currency; temporary inflation and zapped. I have seen year over year strong growth only to watch huge market adjustments and currency swings in many of the foreign nations offering these deals.

As a small-time investor you can get hammered playing currencies or even using such a bank account scheme, although in some cases money has been made as promised and the foreign currency has even gone up during the time period, thus interest plus increased valuation.

Now then, let's say you are going to put US Dollars into an El Salvador Bank at guaranteed interest of 10%, but during the time period the currency devaluates? Well, you have 10% more money minus the devaluation, and you still took a huge risk outside the safer US Banks paying a lower interest rate.

On the other hand investing in El Salvador Bank shares might be different as stock, but I have no clue, what they are loaning on or how they operate. If you have first hand knowledge then that makes sense or if you are traveling and wish to have some money already there as you travel it also makes sense. Indeed, one has to consider what the money is being used for while the bank has it. Such as Guerrilla War financing, drugs or some thing sinister?

In my personal opinion - Investing in Emerging Market Debt can be a good play from all I read. Even larger multi-national banks are invested in these places; I like some of the "micro-loan" programs that are going on out in the world. There is a lot of risk investing in one particular bank stock or play of course.

My thoughts and in my personal opinion; would be I guess to find a Mutual Fund that specialized in emerging debt markets, that was diversified with some top managers and decent track records.

San Salvador has Earthquakes, weather issues, all sorts of things, guerillas, drugs, it is a third world country. In my personal opinion - I worry about Central Banks really. I like the Central Banks in Chile, Malaysia, South Africa, but of course the interest they are paying is not close to what you have quoted. Well I guess those are my personal opinions on the Bank Account Scheme.

L. Winslow is an Economic Advisor to the Online Think Tank, a Futurist and retired entrepreneur http://www.worldthinktank.net . Currently he is planning a bicycle ride across the US to raise money for charity and is sponsored by http://www.Calling-Plans.com and all the proceeds will go to various charities who sign up.