Wed | Mar 21, 2018

Financial Adviser | A place for my US dollars savings

Published:Sunday | January 31, 2016 | 12:00 AM

QUESTION: I just came across an article you wrote for the Jamaica Gleaner regarding where to invest large sums of money. I'd like to put aside approximately US$18,000, which is currently sitting in a regular account. I'm not a risk taker when it comes to money, but since it's not being used at the moment, I don't mind putting it elsewhere and earn a little more interest. Unfortunately, I'm not able to gather much from the websites of most investment banks and, therefore, unable to make comparisons. Would you mind giving a few suggestions on which accounts would be better options? My intention is to use the interest earned to offset expenses for my ailing parents. Thanks for your time and consideration.

- Wendy

FINANCIAL ADVISER: I can appreciate your frustration with the challenges you face getting rates from the financial institutions. My research confirms that savings rates are low, but term deposit rates are not much better so I suggest that you look at other options, such as global bonds.

It is quite true that the websites of many financial institutions do not have the information the public needs to make decisions. It is often absent or not current. One course which sometimes yields a better result is using the telephone. It often requires patience but it is worth a try and it should not necessarily cost you as the financial institutions tend to have toll-free lines.

A quick survey I conducted turned up rates on US-dollar savings accounts ranging between 0.07 per cent and 0.15 per cent. Fixed deposit rates for US$18,000 were as follows: 90 days, 0.45 per cent to 0.75 per cent; 180 days, 0.8 per cent to 0.85 per cent; 360 days, 1.0 per cent to 1.1 per cent. These rates clearly will not help you.

better option

Global bonds issued by the Government of Jamaica seem a better option. These are denominated in US dollars and are not taxed at source, which does not mean that they are tax-free. For the purpose of this response, I opted to look at instruments maturing in 10 to 12 years.

The yield on such instruments typically ranges from 6.00 per cent to 6.50 per cent. The coupon, the rate stated on them, is higher than that but the yield is lower due to the price being above par, or 100. Although this is so, the price paid at maturity will be 100.

I should point out to you that you would pay more than US$18,000 for the bonds because of what I said about the price previously. But there is another important reason why you would pay more. Sellers would be entitled, as generally happens when bonds trade, to interest for the period between the last interest payment and the time at which they sold the bond. You would recover that portion of the interest on receiving your first interest payment, which would be for six months. Interest on bonds is generally paid twice per year at six monthly intervals.

One feature of some of these bonds is that the principal is repaid not in one lump sum, but in several over several years. The global bond which is due to be fully repaid in 2028, for example, is to be paid in three equal tranches between 2026 and 2028.

If you are interested, you may make contact with licensed investment dealers such as stockbrokers and fund managers. The Yellow Pages should help you identify them and provide necessary contact information.

I cannot guarantee that you would earn enough from the global bonds to meet the required expenses or that the timing of the interest payments would match your cash flow needs, or that the financial institutions would source them readily, but you could give them some consideration. As a first step, seek to understand what they are and how they function.

n Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.