Mexico cd rate of 8.25% anyone biting?

Question

I see the current cd rates are around 8.25% in Mexico.  That coupled with the low cost of living would make it really attractive in my mind for a place to retire early.  I think a good trial run would be to move $200,000 or so into an account and try it out at first or course.  Have any or you thought about doing this?  I realize there would be fees and such to get the currency back into dollars if need be though.

Chris Mason · Answer

The risk of the Mexican currency dropping relative to USD is obviously baked into that. The delta between a Mexican CD and a USD CD is called risk premium, which is also why the person with a FICO score of potato pays more interest to borrow money than the person witha  FICO of 800.

The more direct route to what you want to do might be direct currency speculation. You've got the scoop or theory on why Mexican currency is going to do better than others think, and you think the EU is about to implode? Sell a bunch of Euros and buy Mexican. Putting that money in a Mexican CD would be doubling down on that bet.

Steve Vaughan · Answer

The exchange rate risk could be huge.  Bank risk, too.  Do they have FDIC-like deposit insurance there?

Hate to see ya change your pesos to USD a year from now and find out you're down 14%. Maybe start with less than $200k.

Interesting idea, though!

Ned Carey · Answer

@Jerrad Shepherd i wouldn't even consider it. I don't know Mexico or the risks involved. My lack of knowledge is itself a risk.  Why would I put money into a risky investment I don't understand when I can do as well or better in real estate here that I do understand.

Maybe I was not quite as eloquent as Warren Buffet would state it, but it is the same concept.

Mexico cd rate of 8.25% anyone biting?

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