Global CD accounts can provide high return rates // But be warned, there are high risks involved

NEW YORK A chart of bank rates advertises a one-month certificateof deposit with a 16.35 percent annual yield, a three-month CDyielding 10.6 percent and a one-year CD at 13.5 percent.

Sound out of this world? Well they are - or at least out ofthis country. They're in Mexico, Israel and South Africa,respectively.

CDs and money-market accounts denominated in dozens of foreigncurrencies - a few with double-digit yields that dwarf the ratescurrently offered here - can be purchased from some banks in theUnited States. Among the key players: big institutions such asCitibank and First Union and regional ones such as Mark TwainInternational Markets in St. Louis and Treasury WorldWide inWashington, D.C.

These global accounts, which sometimes require lofty minimumdeposits of $10,000 or more, can provide high rates of return forthose seeking diversity yet concerned that the soaring U.S. stockmarket may be running out of steam soon.

But global CDs and MMAs also carry some high risks.

Besides taking a chance on the direction of interest rates in aparticular country, investors have to worry about currencyfluctuations (common and constant) and whether their money will beinsured (sometimes it isn't).

"They're a gamble, but they can be a very lucrative one," saidRobert K. Heady, publisher of the West Palm Beach, Fla., newsletterBank Rate Monitor.

Some financial advisers maintain that now is the best time to goglobal.

The reason: The dollar is up sharply against many currencies inEurope and a few in Asia, though it's expected to soften after thesummer.

So, that means the dollar will likely be converted into moremarks, francs or lira, for example, when the CD or money-marketaccount is established. And if it weakens by the time the money iswithdrawn, those currencies will be exchanged for more dollars.

Investors who pick the "right" country can make a bundle.

Let's look at how $20,000 deposited a year ago in a one-yearMexican CD, which had a 27.5 percent annual yield back in July, 1996,would fare when it matures today, according to figures provided byTreasury WorldWide.

Based on the year-ago exchange rate of 7.618 pesos to thedollar, that $20,000 would be converted into 152,360 pesos upondeposit.

By the end of the year, it would have earned 41,899 pesos ininterest, bringing the account total to 194,259 pesos. Convertedback into dollars at a late-July exchange rate of 7.925 pesos to thedollar, which is slightly off from a year ago, that $20,000investment would swell to $24,512.18, or a 22.56 percent actualreturn.

Not bad, especially compared with what would have been earned ona one-year CD at a U.S. bank. That same $20,000 deposit wouldincrease to $20,989.80, based on a 4.95 percent annual yield lastyear. (Average rates today include 4.07 percent on a three-month CD,4.90 percent on a six-month and 5.20 percent on a one-year, accordingto Bank Rate Monitor.)

But what if the "wrong" country was chosen?

A $20,000 deposit into a one-year Swiss CD would have plunged to$16,625.23, for a negative 16.87 percent annual yield, according toTreasury WorldWide. That's because the dollar started out at 1.21Swiss francs per dollar when the CD was established in July, 1996,but it strengthened when the CD matured, to nearly 1.50 francs perdollar.

"You're actually betting against the dollar," Heady said of theinvestment strategy. "You're investing in the strength of a foreigncurrency. That's a 180-degree mental twist for most people here."

Neil J. George Jr., chief international economist for MarkTwain, a division of Mercantile Bank, also sees it as an investmentin the other country.

"The element here - the currency - might very well be consideredthe stock of a country," he said. "The currency's performance willtend to reflect the strength of the country's fiscal policy, itsleadership."