- Thread starter jerryme
- Start date
Central bank CDs
Banco Central CD's
The process is not hard but it is time consuming. Go to the bank with a certified check from one of the local banks. Take your savings account passbook and your passport/cedula. Get there early to get a number and wait! I would think someone there speaks English. The bank just announced today that they are paying 24% interest on peso CD's with $RD 100,000 minumum for 2 years-fixed rate. They pay every first day of the month, automatically into your peso savings account. It works!
Good luck
Rick
The process is not hard but it is time consuming. Go to the bank with a certified check from one of the local banks. Take your savings account passbook and your passport/cedula. Get there early to get a number and wait! I would think someone there speaks English. The bank just announced today that they are paying 24% interest on peso CD's with $RD 100,000 minumum for 2 years-fixed rate. They pay every first day of the month, automatically into your peso savings account. It works!
Good luck
Rick
It works if your timing is correct. If a year from now the peso is at 42 to 1 when you are due to get your money back then it did not work for you since you will change those pesos for less dollars than you had going in. On the other hand...if the peso goes up against the dollar it works extra hard for you since you can change those pesos for more dollars and you made your twenty percent clean interest on top of that.
Anyone care to speculate where the peso/dollar will be a year from now. I'm going to take a wild guess and say it will somewhere around 38 to 1.
Anyone care to speculate where the peso/dollar will be a year from now. I'm going to take a wild guess and say it will somewhere around 38 to 1.
Yes, you can bring pesos in cash- up to $RD300,000 I believe. Now the truth is the peso IS unpredicable BUT- if you invest say $100,000 US at 34(exchange right now, more or less) equals 3,400,000 pesos paying 24% a year. In one year the interest would be $RD 816,000. At $38 pesos per dollar that is $21,473 dollars in interest or 21.473 %- if the peso goes to 50 next year you still make $16,320 dollars in interest or a return of 16.320%.
If you leave that $3,400,000 pesos in the bank at 24% per year(and reinvest the interest) for 6 years you end up with $14,147,877 pesos. If the interest rate is still the same you make $3,395,490 pesos a year in interest. If, in 6 years, the peso is $100 to 1 dollar, you're still making $33,954 dollars a year in interest.
Good luck
Rick
If you leave that $3,400,000 pesos in the bank at 24% per year(and reinvest the interest) for 6 years you end up with $14,147,877 pesos. If the interest rate is still the same you make $3,395,490 pesos a year in interest. If, in 6 years, the peso is $100 to 1 dollar, you're still making $33,954 dollars a year in interest.
Good luck
Rick
Syork said:
Rick, say you invest 100.000 USD @ 22% a year. that is 3.400.000 RD. if 1 USD is 34 RD, that means, assuming you're planning to buy Dollars once the CD matures, every 1 RD +/- fluctuation on the exchange rate is worth about 3%. so at the end of the year, if RD is @ 41, all your interest/profit is eaten up. if it's over 41, you lost money. on the other hand, if it stays the same, or goes down, you made money.
i don't understand your way of calculating it.
"the most valuable commodity i know of is information" - G.G.
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Just a passing comment Other DR1 readers are much more capable of explaning the " what if's " then I however Syork is painting a one sided and cockeyed picture.
Ex: the peso was at 25 to 1 U.S. and now it's at +-34 to 1; within a little more then a year. The quick math says that is close to a 30% loss in value. At the same time the certificates were/are paying +- 18%. Not a great exchange. Additionally, prices also go up as the peso becomes weaker so there is an accelerator effect of loss. 15 years ago I believe the peso was in the single digits against the dollar. OOPS! 2 years ago it went from 25 to 1 to 55 to 1. How does that make you feel? It fell back a short time later to 25 to 1 and here we go again.
My intent is only to offer caution. And what's the rush. Deposit dollars and withdraw the interest and exchange for pesos when needed. Much more stable.
You can walk into Banco Central with a wheelbarrow full of pesos or dollars and they will gladly accept you. Do Not forget to negotiate for a better rate. The D.R.'s banking system is nothing if not nimble. John
Ex: the peso was at 25 to 1 U.S. and now it's at +-34 to 1; within a little more then a year. The quick math says that is close to a 30% loss in value. At the same time the certificates were/are paying +- 18%. Not a great exchange. Additionally, prices also go up as the peso becomes weaker so there is an accelerator effect of loss. 15 years ago I believe the peso was in the single digits against the dollar. OOPS! 2 years ago it went from 25 to 1 to 55 to 1. How does that make you feel? It fell back a short time later to 25 to 1 and here we go again.
My intent is only to offer caution. And what's the rush. Deposit dollars and withdraw the interest and exchange for pesos when needed. Much more stable.
You can walk into Banco Central with a wheelbarrow full of pesos or dollars and they will gladly accept you. Do Not forget to negotiate for a better rate. The D.R.'s banking system is nothing if not nimble. John
Cockeyed?
I don't think my calculations are cockeyed:
$100,000 US at 34 pesos per dollar produces $816,000 pesos a year in interest at 24%.
If the peso goes to 50 per dollar in 2006 at the end of the year you still will have made $16,320 dollars in interest- that's still a 16.320 interest rate for your money-not bad.
Is this not correct.
Plus, if the peso devalues to 50 per dollar then the Banco Central will raise the rates accordingly.
If you live here full time and can keep an eye on your investment, I think it's not a bad move.
Good luck
I don't think my calculations are cockeyed:
$100,000 US at 34 pesos per dollar produces $816,000 pesos a year in interest at 24%.
If the peso goes to 50 per dollar in 2006 at the end of the year you still will have made $16,320 dollars in interest- that's still a 16.320 interest rate for your money-not bad.
Is this not correct.
Plus, if the peso devalues to 50 per dollar then the Banco Central will raise the rates accordingly.
If you live here full time and can keep an eye on your investment, I think it's not a bad move.
Good luck
My final offer. You have lost damn near 50% of your capital if it goes to 50. And, the gov't won't raise rates in a timely fashion. You are " locked in " for 1 or 2 years at the starting rate. The gov't loves to incur debt and then pay it back at an inflated rate.
Anyway. Good luck.
Anyway. Good luck.
Syork said:
you will loose 16%, not gain.
you start off with 100.000 USD, change them to pesos @34 and get 3.400.000 pesos. you're getting 24% interest on your money and at the end of the year you have 4.216.000 in the bank, but now the pesos is @50, so for the 4.216.000 pesos you have now, you only get 84.320 USD. you lost about 16.000 USD, or 16% of your capital.
you made 16.320 USD in interest, but you lost 32.000 USD off of your initial deposit, so the end result is that you lost 16.000 USD.
why do you think they are not paying 24% on USD deposits.
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My version:
Let's asume an actual rate 34RD$ to 1USD when we'd buy the offered 2year FIXED 24%pa rate CD.
Let's say we'd invest the mentioned 100K USD converted in Dominican Pesos = RD$ 3.4Million
IF they offer a monthly a re-invest program, meaning that our monthly interest wouldn't be paid out to a separate account but added each month to your invested principal and the next months interest would be calculated on that new principal, we'd have a total of about RD$ 4.3Millinon after the first twelve months (effective yearly yield about 26.7% in RD$ based on the re-investment scheme), at the end of the 24th month that would increase to a total of RD$ 5.46 Million. That would represent a total profit in RD$ of about 2.06 Million RD$ or 60% (over 24 months = 30% pa.) on the initial RD$ 34Million.
RESULTS in USD:
These are aproximate (rounded) numbers.
Please keep in mind that this calculation includes re-investing all the monthly interest and also that we'd really get our money back at expiration of the CD which is an other risk not to forget about. :nervous:
Somebody please correct me if y messed up with my calculation... I am no accountant.
... J-D.
Let's asume an actual rate 34RD$ to 1USD when we'd buy the offered 2year FIXED 24%pa rate CD.
Let's say we'd invest the mentioned 100K USD converted in Dominican Pesos = RD$ 3.4Million
IF they offer a monthly a re-invest program, meaning that our monthly interest wouldn't be paid out to a separate account but added each month to your invested principal and the next months interest would be calculated on that new principal, we'd have a total of about RD$ 4.3Millinon after the first twelve months (effective yearly yield about 26.7% in RD$ based on the re-investment scheme), at the end of the 24th month that would increase to a total of RD$ 5.46 Million. That would represent a total profit in RD$ of about 2.06 Million RD$ or 60% (over 24 months = 30% pa.) on the initial RD$ 34Million.
RESULTS in USD:
- If the RD$-USD pair staid put for those 24 months we'd have reached a total of about USD 160'000.oo and thus made about USD 60'000.oo in two years on a USD 100'000.oo investment. An average 30% per year.
- If the RD$-USD pair would change to (E. g.) 54RD$ to 1 USD we would have neither made or lost money (no loss escept for the loss of potential interst). In other words, as long as the RD$-USD pair stays below 54RD$ to1 USD, we'd be makeing some profit (both in RD$ and USD), if it would end up above 54RD$ to 1 USD we'd be loosing value (in USD)
- If the RD$-USD pair would have reached the with the IMF "agreed" ceiling of 37RD$ to 1USD we would convert our RD$ 5.46 Million into about USD 147'740.oo. Giving us a profit on the initial USD 100'000.oo of USD 47'740.oo or 47.7% over 24 months, which would translate into an average of 23.85% (which is almost equivalent of the mentioned yield of 24% p.a. with no re-investment and no change in the exchange rate).
These are aproximate (rounded) numbers.
Please keep in mind that this calculation includes re-investing all the monthly interest and also that we'd really get our money back at expiration of the CD which is an other risk not to forget about. :nervous:
Somebody please correct me if y messed up with my calculation... I am no accountant.
... J-D.
where is Golo when you need him.
(BTW, this is a very interesting subject to me since i'm planing to buy CDs by the end of the year and try to live off of the interest. no compounding (monthly re-invest program). the way i see it now, if i'm getting 22% a year, about 2% a month, on a 100.000 USD deposit that's about 2.000 USD or 70.000 RD a month. enough for me for the first year. if by the end of 2007 the peso is @42 i break even. i lost about 20.000 USD on my initial depost, but i spent 20.000 USD living and enjoying in the DR, so buying CDs was pointless and i would go back to Canada and work about 4 months to make up the lost money. BTW, not a bad trade off, work 4 months and then chill a year. and if the peso if anywhere below 42 i "made" money in a way.)
thanks for the topic. this is one of the things i read most about on DR1.
and PS. if instead of spending the 2.000 USD i get every month in interest i spend only 1.500 and put 500 USD in my account, at the end of the year that gives me a 5% buffer in the exchange rate.
(BTW, this is a very interesting subject to me since i'm planing to buy CDs by the end of the year and try to live off of the interest. no compounding (monthly re-invest program). the way i see it now, if i'm getting 22% a year, about 2% a month, on a 100.000 USD deposit that's about 2.000 USD or 70.000 RD a month. enough for me for the first year. if by the end of 2007 the peso is @42 i break even. i lost about 20.000 USD on my initial depost, but i spent 20.000 USD living and enjoying in the DR, so buying CDs was pointless and i would go back to Canada and work about 4 months to make up the lost money. BTW, not a bad trade off, work 4 months and then chill a year. and if the peso if anywhere below 42 i "made" money in a way.)
thanks for the topic. this is one of the things i read most about on DR1.
and PS. if instead of spending the 2.000 USD i get every month in interest i spend only 1.500 and put 500 USD in my account, at the end of the year that gives me a 5% buffer in the exchange rate.
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Right... it should read 3.4 Million.
Thanks "rellosk" for the nice comment and for finiding the typo. It should indeed read "RD$ 3.4 Million" (instead of 34 Million) at the end of the 3rd paragraph.
Corrected:
Btw: This was calculated manually assuming that 24% a year breaks down into an average 2% a month... so I multiplied 3.4 by 1.02 and that result again by the same factor 11 more times (total of 12 months) to get the first years compounded return. then I kept on doing that 12 more times (starting with the result of the first 12 months. There is a formula to do this all at once (putting in running time in months or years, basic interest and principal) but I just don't seem able to find it anymore. Maybe somebody has it and would post it here...
Finally, one thing I just briefly mentioned, but nobody seemd to have picked up on inlcuding in earlier posts, is the investment RISK, meaning the risk of not gettin our principal back at all or only part of it in a settlement. These CD's, while issued by the Central Bank are probably not AAA rated. The bank may at one point declare itself not able to repay these loans in part or in total (see Argentina and Uruguay recently). So we should not bet the farm on such papers (IMHO).
Thanks! ... J-D.
rellosk said:
Thanks "rellosk" for the nice comment and for finiding the typo. It should indeed read "RD$ 3.4 Million" (instead of 34 Million) at the end of the 3rd paragraph.
Corrected:
Btw: This was calculated manually assuming that 24% a year breaks down into an average 2% a month... so I multiplied 3.4 by 1.02 and that result again by the same factor 11 more times (total of 12 months) to get the first years compounded return. then I kept on doing that 12 more times (starting with the result of the first 12 months. There is a formula to do this all at once (putting in running time in months or years, basic interest and principal) but I just don't seem able to find it anymore. Maybe somebody has it and would post it here...
Finally, one thing I just briefly mentioned, but nobody seemd to have picked up on inlcuding in earlier posts, is the investment RISK, meaning the risk of not gettin our principal back at all or only part of it in a settlement. These CD's, while issued by the Central Bank are probably not AAA rated. The bank may at one point declare itself not able to repay these loans in part or in total (see Argentina and Uruguay recently). So we should not bet the farm on such papers (IMHO).
Thanks! ... J-D.
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G
gary short
Guest
you take that formula and multiply it by F. F being the percentage the f**king peso devalued over the past 12 months.
G