Everbank rate vs FCNR Rates, Difference of more than 100% ..Why?

[chand28]

Everbank is probably the best known bank that promotes CD's in foreign currencies. However the replica Deposits are offered by FCNR at ridiculously unbelievable rates.

Here is an example
Australian Dollar 12 month everbank rate : 3.5%
Australian Dollar 12 month FCNR Rate : 6.05%

Canadian Dollar 12 month everbank rate : 0.10%
Canadian Dollar 12 month FCNR Rate : 2.25%

British pound 12 month everbank rate : 0.10%
Canadian Dollar 12 month FCNR Rate : 2.30%

If you are a US Citizen, you will have to pay taxes on the gains, be it everbank or FCNR.Some financial banking experts can help me understand this HUGE difference. If it was so good in face value, why are investors,professionals not jumping into the bandwagon.All they have to do is a carry trade.. borrow AUD /CAD in USA and deposit it in India?. As far as I know FCNR has been in existence for a very long time.


http://www.everbank.com/001CurrencyCDSingle.aspx
https://www.online.citibank.co.in/citi-nri/products-services/foreign-currency-account.htm#tblesec

[chand28]

Any luck ?

[catharsis]

I an not sure I understand your question and I am not, by any means, a financial expert.

The simplest explanation for what I think is your question: The rate you pay to borrow money depends on your credit worthiness, in today's crazy times, measured by credit ratings created by the rating agencies (setting the fox to guard the henhouse IMHO). When you lend to Everbank, the money gets deposited with some AAA rated financial house. FCNR is a Govt of India venture so I would check their credit rating Baa-). Hence the difference in rates.

Let's say you have dollar savings that you wish to invest in AUD for a specified period. To do that, you need to execute two forex trades USD->
AUD and AUD->USD. Futhermore, you need to hedge the exchange rate risk for the entire period. So, is 6% such a big deal?

[RRK]

Everbank is probably the best known bank that promotes CD's in foreign currencies. However the replica Deposits are offered by FCNR at ridiculously unbelievable rates.

Here is an example
Australian Dollar 12 month everbank rate : 3.5%
Australian Dollar 12 month FCNR Rate : 6.05%

Canadian Dollar 12 month everbank rate : 0.10%
Canadian Dollar 12 month FCNR Rate : 2.25%

British pound 12 month everbank rate : 0.10%
Canadian Dollar 12 month FCNR Rate : 2.30%

If you are a US Citizen, you will have to pay taxes on the gains, be it everbank or FCNR.Some financial banking experts can help me understand this HUGE difference. If it was so good in face value, why are investors,professionals not jumping into the bandwagon.All they have to do is a carry trade.. borrow AUD /CAD in USA and deposit it in India?. As far as I know FCNR has been in existence for a very long time.


http://www.everbank.com/001CurrencyCDSingle.aspx
https://www.online.citibank.co.in/citi-nri/products-services/foreign-currency-account.htm#tblesec

1) Not every one can invest in FCNR. For example, an American American can't do it.

2) Yes, Indians can take advantage of it. Indian banks always offer higher int rates in FCNR than the 'local' banks - because that is the only way Indian banks can attract foreign currencies. This is where credit worthiness of the bank and country comes in. If they can offer lower rates and attract money, I bet Indian banks would do that.

3) Can't do carry trade with what you described here. To do carry trade, some one should lend you money. You have not posted the lending rates for these currencies. You have only posted deposit rates ( or borrowing rates of the banks). We need both rates to see if an arbitrage exist.