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Yankee Certificate of Deposit (CD)

A Yankee certificate of deposit (CD) is issued by foreign bank offices in the USA. It is denominated and payable in the USD. Yankee CDs are required by foreign lending institutions in order to raise capital from depositors from the United States of America.

More about Yankee CDs

In order to provide loans to US clients and meet other commitments denominated in dollars, foreign banks functioning in the US need access to dollars. Accepting the deposits by foreign banks from US clients through special CDs named Yankee bonds allows increasing the amount of this capital in US dollars.

The Yankee CDs are designed for saving clients' money in exactly the same way as any other certificates of deposit. Interest on these savings accounts is paid until returning the initial investment at the end of a certain investment period. Despite the fact that it is quite common for depositors to pull out their money before the due date, it is quite possible to get an early withdrawal penalty.

These certificates are considered to be short-term, as they are issued for a period of 1 month to 5 years. It should be noted that the longer the maturity period, the higher the interest paid. 

It is also worth noting another significant difference between Yankee certificates and other CD types, that is the presence of a minimum investment amount. As a rule, the face value of Yankee CDs is about $100,000, which is why they are more attractive to large depositors and investors.

Since these CDs are not issued by US institutions, Yankee certificates of deposit are not protected by the Federal Deposit Insurance Corporation (FDIC) and do not have benefits of FDIC insurance.

Special considerations of Yankee CDs

Yankee certificate issuance is usually carried out in New York by foreign credit institutions with offices in the United States. These types of certificates can be sold directly by foreign banks themselves, or through intermediaries, which are certified broker-dealers.

Most often, the sale of Yankee CDs is carried out by banks from such countries as Japan, Canada, the UK and part of Western Europe. Financial resources received by means of these certificates of deposit are used by credit institutions for the purposes of lending to its institutional clients in the United States.

In accordance with data from the Federal Reserve Bank of Richmond, Yankee CDs performed better and showed higher returns compared to national certificates of deposit when they were originally issued in the 70s of the 20th century.

It was difficult to assess the foreign banks' creditworthiness due to the lack of publicity and  insufficiency of financial information. In addition, this process was negatively affected by accounting rules that differed from country to country. As foreign banks gradually grew in popularity, the premiums paid by them on Yankee CDs decreased. Once foreign banks were exempted from the Fed's mandatory reserve requirements, that existed before the transition to the International Banking Act of 1978, there was a partial offset of the difference in the value of funds.

The steady Yankee CDs market growth began in the 80s. In December 1990, reserve requirements for non-personal term deposits with maturity of up to 18 months were canceled. Prior to this, the Fed required a 3% reserve to be maintained for foreign banks financing dollar loans to American borrowers with Yankee CDs.

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