Is it Possible to earn more than 25% Interest Rate in Bank Deposit?

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If we will to include “interest” income from preferred or debt securities shares of stocks, it is very much possible. Actually, you could earn more than 25% by buying high dividend paying preferred or debt securities in the Stock Market. Usually, these shares were issued by companies who are known to have a financial problem or in a bridge of bankruptcy. That is, as the rule of thumb says, “high risk, high reward”.

How about in banks, can we find banks where we can earn high interest rate?
We’ll this is possible if you are living, maybe in Congo Democratic Republic; but due to the economic condition of such countries, it is also very risky.

The easiest way to earn high interest income from cash deposit is through a Forex Broker. This is how to do it;

1. Open a Forex trading account; I suggest Oanda, FXCM or IBFX (just search this in Google, okay?). Then, fund your account. A few hundred dollars is more than enough.

2. Open a currency pair position. It should be a pair of two countries with high and low interest rate, and in the position side of the country with high interest rate. For example, US Dollar (USD) has an interest rate of around 0.25% while Hungarian Forint (HUF) has 6.5%. So, what you should do is to “short sell” USD/HUF currency pair. What will happen is that your broker will “loan”, say USD1000 from US bank at 0.25% interest rate, convert it to Hungarian Forint at the prevailing exchange rate, and deposit it in the bank in Hungary at an interest rate of 6.5%. Effectively, you will earn (6.5%-0.25%) = 6.25% interest rate.

3. But I thought we’re talking 25% interest rate? Okay, this is how the sweet thing about leveraging in the Forex market works.  Assuming you have USD1000 of fund in your forex trading account, your forex broker will give you a leverage to increase the amount of money that can be loaned from the bank. To continue our example, if your broker gave you a leverage of say 1:5, you can make a loan of USD5000 from US bank using your USD1000 in your Forex trading account as “collateral”. The USD5000 that you have loaned will now be converted to HUF using the prevailing interest rate and deposit it to bank in Hungary. Your deposit is, thus, multiplied by 5 and so as your income rate with respect to your fund in your forex trading account. That is, the USD5000 will earn USD5000*0.0625 = USD312.5 thus, USD312.5/USD1000 = 31.25%.

Of course, the law of risk and reward still applies here – you have the high reward, so as your risk. The risk is, what if the exchange rate plunge against the currency pair position that you are holding? – You will loss all your money in your forex trading account. Note also that this is not secured by a Deposit Insurance Company.



Category Filed in: FOREX Trading, Fixed Income
Local date: March, 2010

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