less at Everbank

March 16, 2006

View from Silicon Valley- You get less at Everbank.

A number of financial commentators recommend Everbank. Everbank is advertised as a safe, simple and efficient way to gain exposure to foreign currencies. After hearing some of the dire predictions for the dollar, who wouldn't want a quick and easy escape?

Everbank advertises a "Web Safety Guarantee & Ironclad FDIC Safety!" They claim, "Manage all of your Everbank and non-Everbank accounts in one site!" and "friendly live service just a toll-free call away, 24 hours a day, 7 days a week!"

We bought into the hype and put a small percentage of the portfolio with Everbank in late 2004. A recent run-in with them exposed some holes in their claims and led to a little additional research. First the rant, then some concerns about doing business with them followed by the results of our research.

It turns out 24/7 service, live or otherwise, does NOT apply to foreign currency CD customers. This detail turned out to be the beginning of a slippery slope.

My February 28, 2006 e-mail to Everbank:

"Last year I lost money on my foreign CD investments. That's not why I'm writing this note. I accept full responsibility. It's part of the deal.

"However, each quarter when my CDs rolled over, the statements were all expressed ONLY in the foreign currency. I had to call in, & only during YOUR business hours, to determine their US$ value. I had to call in every quarter, if I wanted to monitor the value of my investment.

"I finally 'gave up' & let the CD's expire. (Actually, I had to call in, again during their business hours, to stop the rollover.) Having lost money, one consolation was I could at least report the loss on my taxes.

"I called in, again, today to learn the US$ value of my CD's upon expiration. But your customer service won't tell me, instead referring me to paper statements sent when the CD's expired."

There were a couple pretty snippy paragraphs after that, but you get the point. My on-line brokerage data, which has three times the transactions, not to mention dividends and interest, can be worked out in about 20 minutes. It took three-plus hours to work the net gain/loss with Everbank. Puh-lease can we find someone there who "gets it"?

Apparently not, as the reply, dated March 1, came back:

"I am sorry to hear you are unhappy with the statements sent to you, but I assure you the US$ value does appear on each opening and closing confirmation. The maturity notices, which are mailed approx. one month prior to maturity of the CDs do not state a US$ value, as we can't predict what the value will be at maturity.

The current value of all of the WorldMarkets accounts are available online in our EverOne Financial center. These values are updated on a daily basis. Also, the history of the account is available online..."

So why did your customer service say only the paper statements contained this info???

In the real world, the closing statement won't arrive via mail until after your CD has already rolled over. If you do want to unwind the rollover, they will deduct 1.5% from principle in addition to keeping 100% of any interest.

Also note, their reply was only put into my on-line account (the one which their own customer service confirmed did not contain the requested data). It was never sent via e-mail.

I happened to find this message after only a couple days, found the data, and replied:

"While it is technically true, 'the history of the account is available online,' the relevant info (i.e., the US$ value of the CDs at close & open) is only available by drilling down into a secondary screen. While it's nice to know I would not be totally lost if I my pack rat skills happened to hiccup, I am still stuck with manually copying the US$ info, item by item.

"Surely there must be some way to include the US$ value of CD's on the summary screen & enable customers to download a file with all the info they need to do their taxes?"

The response was "we do not have that ability." Gee, thanks!

Let's see three CDs, each over three quarters, each open and close is 18 individual numbers to manually copy into a spreadsheet. Then manually re-build the transactions to extract the net. Yee-ha!

Still on a low boil over this "overhead," I got a blurb from Everbank selling CD's denominated in Icelandic Krona paying 8.5%, which was described as a "huge" built-in margin in case the currency happened to fall.

A few days ago Bloomberg ran the following blurb on Iceland:

"Reykjavik-based Sedlabanki may increase the repurchase rate to 11.25 percent from 10.75 percent, according to four out of five economists surveyed by Bloomberg News from March 23-28. The fifth expects a quarter-point increase.

The krona has slumped 12 percent against the dollar this year, the second-worst performance of 62 currencies tracked by Bloomberg, on concern over accelerating inflation, ballooning corporate debt and a record current account deficit. Soaring house prices have also fueled consumer-price growth, which has surpassed the central bank's target for two years."

Wow! A currency paying 10.75% or even 11.25%! Oh, but wait, Everbank was only paying 8.5%. That's 21% (or 24%) off the top! While Everbank's customers (i.e., you) take all the principle risk.

With the krona falling -12% against the dollar YTD, the exchange rate has more than wiped out your ~8.5% interest if you bought a few months ago. I wonder how many bought this CD, not realizing Iceland's rates were high for good reason?

OK, caveat emptor. Everbank implies these CD's are low risk and they are, apparently, FDIC insured. Even so, you can still lose large hunks of your principle!

A few days ago, a blurb on New Zealand explained they have an even worse trade deficit than the USA. Similar aspersion were cast at Australia. Both countries were highlighted by Everbank in 2004 -05 as though the CDs were from stable, safe havens with the added benefit of paying a better yield then sure-to-fall-further US dollars.

Today, a 90-day New Zealand CD from Everbank pays 5.75% (or Australia at 4.00%). A brief web search finds "savings accounts" in New Zealand actually pay 7.00%+ (18% higher) with Australian 90-day term deposits at 5.0% (25% higher).

No wonder the guy in the Everbank radio ads sounds relaxed! He's raking in 18 -25% higher interest than what he pays out to customers. Isn't that about what hedge funds charge?

Just to be clear, Everbank does not appear to be doing anything illegal or even outright dishonest. (Although their claim of 24/7 live customer service is a hair's breadth from where a reasonable person would "draw the line.") This is still a free country and they are in business to make a profit.

However:

1) Everbank's foreign CD operation is not low-overhead, measured either by

A) time required to manage it, or

B) its correlation with the theoretical return,

2) it is not as convenient as an on-line brokerage, and

3) several rates are significantly(!) lower than those actually available in a given foreign currency.

By they way,

4) when you stop and think about it, does insuring a foreign-currency investment with the FDIC really reduce your exposure to a dollar crash? Won't the FDIC pay you back in (potentially-devalued) US dollars?

Conclusion:

There are plenty of options to get out of dollars and/or compensate for dollar inflation. A very few examples include PSAFX, HSTRX, BEGBX, FAX, VIPSX and, of course pretty much any precious metal or precious metal-related fund. Do your own research! These also come with risks!!

These can all be managed on-line, completely at your own convenience. It is also very likely none of the companies offering these products are skimming 18% -25% off the top.

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The above is solely for entertainment purposes and is explicitly not intended as advice to buy, sell or hold any stock, bond nor any other financial product.

We are not licensed, nor in any other way qualified, to give investment advice. Invest at your own risk.