Taking Stock: Everbank

Dear Mr. Berko:
I might move my business account to EverBank. Is this a safe bank? I’ve got $60,000 I can’t risk because I will need it in seven months. EverBank has foreign exchange CDs so what do you think about the Australian six-month CD that yields 2.75 percent? In February of this year, you wrote that interest rates and inflation would be a factor in the stock market and the economy. Well, it looks like interest rates and inflation are remaining low. Do you think these low rates are here to stay?
B.B., Minneapolis
Dear B.B.:
EverBank opened its vaults in Jacksonville, Fla., in 1962, and it’s just as safe and fine an institution as its much larger public brethren. Heck, EverBank is probably a finer bank – they never took a dime from TARP because they were better managed with a better balance sheet than Bank of America, Citicorp, Wells Fargo and the other venal scoundrels. 

They’ve got about $9 billion in deposits, a large online presence and because they’re not “too big to fail,” they managed their business wisely. They pay a good rate of interest on checking accounts, and their CD rates are a bit higher then the miscreants who blithely euchred tens and tens of billions of dollars. And a nutty acquaintance in Jacksonville, who can’t ever keep his checking account balance straight, tells me that the folks there (for all his quirks) treat him “like an honored guest.” 

I would never keep my money with the money-centered debauchees who run those banks of ill repute. So I heartily approve your move to EverBank, but I do object to your $60,000 purchase of a six-month 2.75 percent CD denominated in Australian dollars. While the yield is attractive, you may not know that the maturity value is based upon the value of the Australian dollar, which may be higher or lower than it is today. So the maturity value of this CD might be $58,000 or $62,000 (more or less), which means that EverBank’s foreign exchange CDs are not insured. 

And if you’re intent on gambling with that CD, you ought to read the fine print on the CD contract. EverBank will earn an entitled “arbitrage profit” on the exchange rate, which will be within 1 percent of the available market rate for the Australian dollar. Therefore, the net income at maturity to you is six-months of interest ($825) less a 1 percent exchange rate of $225, or $600, which is an annual return of 0.2 percent. And that’s before U.S. taxes. 

In order to come out ahead with EverBank’s foreign exchange CDs, you have to buy six-month CDs in the Brazilian real, which yields 5.62 percent, or the South African rand at 4.25 percent and hope they don’t crash. I suggest that you keep your money stateside where you can keep an eye on it. 

Interest rates have not run up as I expected, and inflation has not poked its head above the parapet. Well, it’s common knowledge that the Fed is artificially keeping rates low so our glass house economy won’t crack. But keeping rates low is like holding your breath, and the $64 trillion question is: How long can the Fed hold its breath? 

Inflation! We got it, but Washington fiddles with the figures thorough the Bureau of Labor Statistics. Most consumers know it costs more this year to buy prunes, pizza, pasta, soups, saltines and sardines than it did last year. But interest rates will move up sharply when most folks least expect them to, and when they do, the inflation rates will be close behind.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
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