Dear Dr. Don,

Can an emerging markets foreign currency investment be FDIC-insured? I read this in a report and have my doubts.

— Sigrid Schilling

Dear Sigrid,

For a deposit to be FDIC-insured, it has to be held in an FDIC member financial institution. Holding deposits denominated in foreign currency is possible. The key thing to remember is that the FDIC insurance doesn’t protect your deposit from currency risk. It protects you from bank failure.

Retail banking clients can invest in foreign-denominated CDs, money market accounts or checking accounts. The big player in this area for retail accounts is EverBank. Your CD can be denominated in a basket of currencies, or in an individual country’s currency. EverBank picks what goes into the baskets, but there is a lot of variety. The bank offers commodity-, economic- and geographic-themed baskets.

The expected downward pressure on the dollar can make these foreign-denominated investments attractive to U.S. consumers. They just have to understand that the currency exchange rates can move against them, reducing the dollar value of the deposit, if the dollar were to strengthen against the currency or currencies on deposit in the account.

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