The World's Safest Country... And Why Interest Rates There
Are
So High
by Dr. Steve Sjuggerud
February 2, 2006
Investing in the world’s safest country just got easier…
Usually, interest rates in safe countries are really low... In Switzerland, for example, bank deposits pay less than 1%. The same is true in Japan. In Sweden, interest rates are 1.5%. And in the Euro area, interest rates are about 2%.
But in Iceland, one of the safest countries in the world for doing business, the Central Bank currently has its overnight lending rate at 12%.
Things are surprisingly good in Iceland now. With the exception of Ireland, Iceland has the world’s fastest growing developed economy… and Iceland is offering investors a great chance to earn big returns on their cash… as I’ll explain.
You might be surprised to learn Icelanders enjoy the world’s longest life expectancy, and one of the world’s highest incomes per person. Crime is almost non-existent there. It’s probably because everyone has a job… unbelievably less than 3,000 people in the entire country were unemployed in the third quarter of 2005.
In the last six years or so, I've traveled to Iceland many times. I've driven all over, from its snow-capped mountains to its beaches. I've visited its companies. I've met with all of the major brokerage firms and traded with them... to the point where they know me by name at the two biggest firms.
In fact, across my career I've been significantly responsible for about $100 million dollars in trading activity in this country.
In all that time, I haven't had a problem. In short, I never worry about my money there. It's because I believe this country may be the safest country in the world in which to do business.
So the question is, if Iceland is such a safe country, why are interest rates so high?
The answer is actually pretty simple: Iceland is extremely scared of inflation.
Iceland has had serious trouble with inflation in the past. In August 1983, inflation in this country reached over 100%. That's a level you'd expect in some sort of banana republic, not in one of the world's wealthiest countries (on a per capita basis), with an AAA rating on its debt from ratings agency Moody's.
When that kind of inflation set in, it wrecked havoc on the economy. The government has since committed itself to never allowing that to occur again.
So today, the Central Bank in that country targets inflation. Whenever inflation approaches 4%, the Central Bank slams on the brakes, and starts raising interest rates.
For most of 2003 and part of 2004, the Central Bank had set interest rates at 5.3%. But now, like in the States, a housing boom has set in. Prices have soared even quicker than they have in the States. That asset inflation is being compounded by the high price of oil, causing the price of goods to rise. It's a double-whammy, and it's now to the point where analysts are predicting inflation of 5% in Iceland in 2006.
Of course, the Central Bank wants to prevent that from happening at all costs. So they’re keeping rates extremely high.
This situation presents a great investment opportunity for us: high interest returns with extremely low risk.
Some DailyWealth readers may already be familiar with this opportunity. I wrote about Icelandic government bonds in DailyWealth on November 9th 2005.
I’m writing to you today because I’ve found an even easier way of taking advantage of Iceland’s high interest rates… a 3-month Icelandic Krona CD.
When you buy a 3-month Icelandic Krona CD, you agree to deposit your money in a Krona-denominated bank account for 3 months. At the end of that period, the CD expires and you get your money back, plus interest. If you prefer to keep your money in Krona, simply roll the CD over for another 3-month period.
The risk lies in the exchange rate. If the Icelandic Krona should fall against the dollar while you own the CD, your principal will decline in the same proportion. Of course, if the Krona gains by 3%, your principal also increases by 3%.
Whatever happens to the exchange rates, you still receive the interest no matter what.
But the most important thing to remember is money will be attracted to Iceland as a direct result of the high interest rates found there… and that should support the currency.
Up until now, collecting these high, safe returns wasn’t possible without buying direct in Iceland. The good news is, Everbank has just introduced the Icelandic Krona CD to its product line, with a yearly rate of 8.24%.
I think this CD is a great place for your safe money… all you have to do is fill out a form and send Everbank your money. The minimum investment is $10,000.
Everbank is a $3.6 billion company with over 1,500 employees nationwide… so you don’t have to worry about dealing with any dodgy foreign brokers or salespeople to make this transaction. I’ve personally sat down with Everbank CEO Frank Trotter and discussed the best possible ways to make new investments just like the Krona CD.
I think they’ve made a great move here… a high paying CD in the world’s safest country. And if you choose to invest, you’ve got to go for a visit. You’ll be glad you did both.
Click here to visit Everbank’s World Currency CD webpage… and click on the Icelandic Krona CD link on the right hand side to learn more.
Good Investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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