CDs in US$ safe?

Ken

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Jan 1, 2002
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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

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Jan 10, 2002
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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

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Jan 11, 2002
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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

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Oct 8, 2002
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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

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Jan 11, 2002
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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.
 
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jojocho

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Jul 10, 2002
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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

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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

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Jan 9, 2002
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Not Quite A Real $ Sh&^&Load

jojocho said:
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

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Jan 9, 2002
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See my other reply to this strategy

GNYC said:

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.
 

gerd

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Jan 10, 2002
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Right Rick,
I've had CDs in RD$ for years and it used to work fine, but of course I have changed it to US$ in the meantime.
I just wonder if it's still clever to have money in this country at all?

Opening accounts in the US don't seem to be so easy for non-residents, from what I've heard....
 

Andy B

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Jan 1, 2002
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Unless banking laws in the US have changed drastically, you won't have any problem opening an account. However you will need to get a US Social Security number which is also no problem. Have you thought about putting your funds in a Money Market account or other high yield program offered by various financial institutions in the US? With inflation being what it is in the DR and the uneasiness within the country, you're better at this time to move your funds to a safer haven and only keep what you absolutely need in the DR. Even the US stock market will do better in the long run. I also recommend only saving US dollars and given the low dollar interest rate offered by the DR banks and the country's financial shakiness, placing them in a "coffee can" account and hiding it in a safe place.
 

Escott

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Jan 14, 2002
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I don't think it is so much the case as the banks being secure as the Central government and the economy of the Country being secure.

My fear is that the DR going like Argentina and Ecuador before it and the direction of Brazil today. If the government falls apart you won't be able to get your money out of a bank in the DR as has happened in Argentina and Ecuador.

Comments?
 

jojocho

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Jul 10, 2002
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Ricktoronto,

Most of your coments are right. However, you must keep in mind that these interest rates are compounded, and that if devaluation is your major issue you could always get US$ CDs. The interest rate on those is still much more than the current rate of US Treasury bonds, granted the additional risk is also much more.

Jojocho
 

Andy B

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I don't know where you guys are getting more than 3% to 4% on a US dollar account in the DR unless you're locking in a great deal of money for a long time, which isn't a good idea given the country's economic instability. Most of the banks I checked with offered accounts in this range, with Baniter offering below 3%. And I had a small $rd CD with Baniter for a year that I recently cashed and actually recieved less than what I started with considering the exchange difference. It would have been better to spend the money buying dollars a year ago!
 

gerd

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Wasn't it Banco Mercantil that was in the news some weeks ago for being (close to) illiquid?
 

Andy B

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I AM referring to CD rates that were quoted to me. At the time I took out the CD a year ago that I was referring to in the above post, the peso CD paid a lot more interest (12%) than the dollar CD (3%). I've checked every which way and I've even considered creating an account in Puerto Rico where the banks come under US banking regulations. And now with inexpensive air travel from the DR to San Juan, that is what we may very well do now. As it is, we encourage our hotel guests to make their reservation deposits into our US bank account instead of processing their credit card deposits into our accounts in the DR banking system.