Diversification is important across sectors as well as internationally, especially with the USA and Europe still unsure if they’ll ride out of this economic slurry. Therefore, maybe it’s a good time to consider Costa Rica and their local Certificados de deposito.
If you’ve ever walked into a Costa Rican bank, you may have seen advertisements for CD’s touting very high interest rates. Some recently fluctuating around 10% return per 12 month “plazo” or “term”. Currently Coopenae, (similar to a credit union) is offering Certificados de Deposito in the range of 7.25% to 12.5% per year depending on the length of the term. For the skeptic, like myself and many others who have been tainted by a difficult last few years of investing, I’m definitely a skeptic on any investment that seems “too good” and a 12.5% return on a CD seems awful hefty, baring in mind CD’s in the US and Canada are usually in the 2-3% range. How can these rates be honest? How can they afford such a high interest rate ? That means a person investing 1,000,000 colones ($2000 USD) would make 125,000 colones ($250 USD) in 12 months? Well, evidently according to Coopenae, that is correct. Kind of makes me wonder why anyone in Costa Rica would put spare money into a savings account. So, is it a good idea to diversify your portfolio in Costa Rica? Check it out.
Below are the terms from the ‘horse’s mouth’ as well as a commentary from another blog in Costa Rica concerning these Certificados De Deposito.
To open a Certificate of Deposit (Certificado de Deposito) with us only to decide the term of your investment (from one month onwards), how often you want to receive interest (one to 12 months) and choose the amount of your investment (minimum ¢ 25,000.00 or $ 250.00).
RetireforlessinCostaRica is a blog that focuses on investing, cash-flow and Costa Rica finances. Below is their take on these high interest Certificados de deposito.
Question #1: “Why Coopenae?”
- First of all, it’s growing like crazy, with over 81,000 members
- It’s a non-profit.
- It’s been in business 45 years
- It has 19 branches in Costa Rica and growing
- It is the biggest Cooperativa in Central America and the 4th largest in Latin America
- What struck me most was the low-default rate on loans — less than one half of one percent, the lowest of any financial institution in Costa Rica. They are very careful about to whom they lend money, which accounts for their low default rate. The default rate on national banks is just under 3%.
Question #2: “But how can they pay such high interest rates?”
- Presently, we’re getting 11.75% on a 12 month Certificado De Deposito. Also, the account is in colones, not dollars. This is important to consider because of the exchange rate, but since we live in Costa Rica and intend to stay in Costa Rica, most of our expenditures are in colones.
- The average return on Certificados De Depositos at Coopenae is 10-11%, while the average loan they make is at 16%. This may seem high to you, but it’s about 6% lower than the national banks for the same kind of loans. This 5% difference is their “profit” which covers salaries, operating expenses, and expansion.
- Also, in the last year or so, Coopenae received two large loans ($15 million each) at 3-4% interest rates, one from the World Bank, and the other from a Dutch bank. This money was designated for small business loans, not micro-loans. Before the loans, Coopenae was thoroughly scrutinized by the aforementioned institutions.
- In addition, the regulating body of Costa RicaSuperintendencia General de Entidades Financieras (SUGEF) monitors ALL 56 financial institutions in the country, has rated them the #1 Coopertiva in Costa Rica. They are also rated highly in the area of liquidity, which means, if you need your money, you can get your money.
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