Bank of China, headquartered in New York, is offering a special CD rate promotion on their one year CD based on the Chinese currency or Renminbi (RMB).  The CD rate on the Bank of China promotion is fixed at 2.68% and is available at the Bank of China local offices in New York on Madison Avenue and in Flushing. 

The CD rate on the RMB based account is fixed however, the account is held in the Chinese currency, Renminbi, and is therefore subject to exchange rate risk which could impact the principal value of the account and the rate of return.  The nominal rate or APY of 2.68% posted on the account could be reduced due to the cost of currency conversion or due to changes in the value of the Renminbi relative to the U.S. Dollar.  Of course, currency fluctuations could augment the rate of the return on the CD account as well.

If the RMB strengthens against US Dollar, the rate of return on the account could be higher.  If the RMB weakens against US Dollar, the rate may be lower than the posted APY.

For those with limited exposure to foreign exchange valuations, a strengthening currency is one that buys more foreign currency and a weaker one buys less of the foreign currency.  A weakening dollar would buy fewer RMBs over time.  As an example, if on August 28, 2013 the dollar is worth 6.1667 RMBs and on August 28, 2014 the value of one dollar goes to 6.1638 RMBs, the US Dollar is weakening while the RMB is strengthening.  

The example listed is based on actual figures on currency values for the dates listed.  In that example, while the dollar is weakening, the RMB is strengthening.  The dollar buys fewer RMBs and therefore, fewer RMBs are needed to buy one dollar.  For the past four years, the dollar has in fact weakened against the RMB and the RMB has strengthened against the dollar.

To put this in perspective for the CD account holder, if an account holder invested in a RMB based CD on August 28, 2013 in an amount of $20,000.00, they would be holding a CD valued at 123,334 RMBs (20,000 x 6.1667).  If the account matured on August 28, 2014 the 123,334 RMBs would be converted back to 20,009.41 US Dollars (123,334 RMBs / 6.1638).  A very slight gain due to the change in the value of the currency (a stronger RMB or weaker US Dollar).  This example does leave off the cost of converting the currency back and forth, a customary charge put in place at most banks and financial institutions, which will most likely turn this small gain into a loss.  The example has also excluded the CD interest rate or fixed rate of return on the account.

The certificate of deposit account offered by Bank of China is an FDIC insured account.  The New York offices of Bank of China are chartered as U.S branches of a foreign institution and are FDIC insured locations.  The accounts at the New York branches of the Bank of China are FDIC insured against losses if the bank fails, but that does not protect the account holders from losing money if the value of the currency (RMB) decreases.

The minimum deposit amount needed to open the CD account is $20,000.00 which is converted to RMBs at the current exchange rate with the bank when the account is opened.

Additional terms and conditions apply.  The CD rate promotion offered by Bank of China is for new deposits made between August 18, 2014 and November 18, 2014.  Terms and conditions are subject to change at the bank’s discretion.  More information can be obtained by contacting Bank of China at 212-935-3101 or 212-925-2355.

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