Would you like to earn an outstanding interest rate while profiting from the continued devaluation of the United States Dollar? Rates for one-year certificates of deposit at the Banco Nacional and Banco de Costa Rica have surpassed 10 percent in Costa Rican Colones (CRC), and top 2.5 percent for deposits U.S. Dollars (USD). The return is a far cry from the anemic 1 percent returns on stateside bank deposits.
The chances of losing in currency exchange in Costa Rica are extremely remote, given that exchange rates have remained very stable for almost three years. During this time, the Costa Rica central bank (BCCR) has been buying U.S. dollars to the tune of hundreds of millions, hoping to prop up the dollar and keep inflation in check.
Behind the continued strength of the Colon is the army of multinational corporations, investing vast sums of money on direct capital investment and making payroll for their Costa Rica operations.
U.S. Multinationals in Costa Rica
Intel Capital (Intel Corporation)
Components Intel S.A.
International Business Machines (IBM)
Proctor and Gamble (P&G)
Hewlett Packard (HP)
Intel for example, has a multi-billion dollar, 52 hectárea microchip fabrication facility (or fab) in Ribera de Belén. In addition to manufacturing, they also have an office campus in la Aurora de Heredia, which provides outsourced professional services for its worldwide operations. These investments require vast injections of dollars to maintain, and the effect on Costa Rica, a relatively small nation of less than 5 million people is readily apparent in the financial system.
So much, that every year in late November the U.S. Dollar takes a precipitous drop in Costa Rica as the multinationals inject dollars into the country to pay the annual Christmas bonus or aguinaldo, equal to 1/12 of annual salaries, or “extra month” of pay. The effect is so strong that the central bank has serious difficulty keeping the ailing dollar stable in the currency market.
A 6-12 month investment in a Colones denominated bank certificate of deposit is unlikely to come with much risk, especially for those who have been earning the 9 to 10 percent return for years, and bringing their money back to dollars. Even thirty day sight deposits in Colones are earning 4.85 percent annually. Expats who have U.S. pension income and local expenses in Costa Rica should consider the investment as a hedge against future losses in dollar devaluation.
The system for making deposits can now be done totally online, for those who have bank accounts in colones at the Banco Nacional (BN). Rates are available online, and the system provides an at a glance summary of positions. The option is also a safer alternative to keeping large deposits in savings and checking accounts, which are linked to debit cards. At the very least the loss of debit card does not expose the user to much risk, because the certificates of deposit are not available for charging.
While the Banco Nacional does not issue 1099-INT tax forms, U.S. persons are still required to pay income tax on their worldwide interest earnings. Costa Ricans with no U.S. entanglements get away tax free on this kind of income. Also, there is a small tax in Costa Rica for bank investments not denominated in Colones, which makes U.S. Dollar investments even less desirable.
Foreigners who are not legal residents of Costa Rica can no longer open accounts here. U.S. taxpayers can thank a jealous U.S. foreign policy, desperate to contain investors in the domestic markets. Banking or investing abroad, even for tax paying Americans has become notoriously complex. Legal residents of Costa Rica, however are welcome to open an account.