Better Interest Rates in Costa Rica?

After the demise of the several high interest houses a few years ago, Costa Rica lost its appeal as a place to get thirty plus percent annual interest rates in a supposed secure offshore environment. Couple that with the influx of baby-boomers and retirees and I often get asked for secure locations where money can be kept at decent interest rates. Here are some of my ideas, and while I am for sure not a financial planner or expert in these areas, I can shed a bit of light on your options here.

Our money needs change as we age. A thirty-something person or couple can afford a lot more risk in their money management style knowing that they have another 30-40 years to “balance” the ups and downs. A bad stock decision is far less important at age 32 than at age 62. Therefore, I am directing this post to the over 50 crowd who are not in the market for a $2 million beach front home in Costa Rica. If you can afford that, then you have little need for anything I have to say.

My preference for security of funds is of course is still the United States. Why? You have options! The FDIC for one. The Federal Deposit Insurance Corporation makes keeping your money safe in any number of banks and S&Ls about as worry free as you can get. You do pay a price for this. Savings deposits in the US earn truly horrible interest rates, often barely keeping pace with inflation. If you are willing to waive the FDIC security blanket, the US stock market can provide a much nicer return on your money, but the risk of course is greater. It is still, however, the only way I know of to earn more than the Costa Rica inflation rate (see below). But what about Costa Rica?

First, there is no FDIC or equivalent here though the state banks of Costa Rica do guarantee your deposits (but not so if you use online banking!) though the recovery process is, as I understand it, very slow… maybe measured in years.

There are also a number of private banks that offer various investment instruments, but theoretically they could close the doors and be gone. Costa Rica does a fair job of monitoring both state and private banks, so while closures of private banks have occurred, they are certainly not frequent. Me? I keep my funds in savings accounts in three banks here. Two are private and the third is a state bank. The interest I receive is pretty crummy, maybe 1-2%, so I started investigating my options.

As inflation is running at 8% (government figures) or 13.2 % (TicoGrande figures), getting a 2% return is not so wonderful. You can buy Certificates of Deposit (CD’s) here for terms of from one to 12 months at rates of from 5.25% to 6.7% (source BAC – 28 July 2007) which is better as you are now only losing 2 % of your money to inflation. But… I found something pretty interesting along the way!

As everyone knows, the US Federal Reserve Bank is not a real bank. You cannot run down and open an account. Here in Costa Rica though, the Central Bank here IS a real bank and operates as such. Therefore it should not have been a surprise when I came across this page on their web site. It appears that the Central Bank is offering interest rates as much as .8% more than the other banks, state or private. While this is not a huge deal, you never have to go to the bank to avail yourself of this. You can subscribe over the Internet, transferring funds in as needed.

So what are the advantages?

1. You get a bit more interest.
2. Your money is in the most secure location in Costa Rica that it can possible be in. If this bank fails, your money would be the least of your worries. It would mean Costa Rica itself has failed.
3. Sometimes you may simply have extra money in an account and you want to put it to work for as little as a few days or for as long as a year but do not want the hassles of going buying a CD which requires a trip to the bank. It also might be great for businesses with excess cash flow.

Here is a chart showing the yield information as of today.

Currency is in colones but I added the equivalent in dollars.

Here are some links to assist you. Spanish required of course.

https://www.centraldirecto.fi.cr/OpcionesInversion.aspx

https://www.centraldirecto.fi.cr/Principal.aspx

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