A Yankee CD is a U.S. dollar-denominated certificate of deposit issued by foreign banks in the United States, offering a way for investors to access foreign bank CDs with U.S. regulatory oversight.
A Yankee CD is a certificate of deposit (CD) issued in U.S. dollars by a foreign bank but sold in the United States. Unlike domestic CDs issued by U.S. banks, Yankee CDs allow investors to hold deposits in foreign banks while still transacting in U.S. dollars. These CDs pay interest at a fixed or variable rate and have a specified maturity date, typically ranging from a few months to several years. Yankee CDs are subject to U.S. banking regulations and are often used as a source of funding by foreign banks seeking access to U.S. capital markets without establishing a full banking presence. In finance and wealth management, Yankee CDs represent a fixed-income investment option that can diversify interest rate exposure and credit risk, as the issuer is a foreign financial institution. They offer investors the stability of a bank deposit combined with an opportunity to earn higher yields than domestic CDs depending on the issuing bank’s credit quality and global interest rate environment. The secondary market for Yankee CDs tends to be less liquid than for U.S. bank CDs, so investors need to consider liquidity constraints when including them in portfolios.
Yankee CDs matter because they provide an additional fixed-income investment avenue with exposure to foreign banking institutions while maintaining U.S. dollar denomination and regulatory protections. This can enhance yield opportunities in a low-interest-rate environment or serve as a credit diversification tool in a fixed-income portfolio. For investment advisors and family offices, Yankee CDs offer a way to balance risk and return by investing in higher-yielding yet relatively secure instruments backed by foreign banks. Moreover, these instruments can have specific implications for tax planning and reporting, as interest income must be reported under U.S. tax laws, and the issuer's foreign status can affect interest payment timing and withholding requirements. Governance and due diligence processes need to account for the creditworthiness of foreign banks issuing Yankee CDs, ensuring alignment with the family's risk tolerance and investment objectives.
Suppose a family office invests $500,000 in a Yankee CD issued by a reputable foreign bank with a 2% annual fixed interest rate and a maturity of 1 year. At maturity, the family office receives its original $500,000 principal plus $10,000 in interest (2% × $500,000). This investment provides a relatively safe yield in U.S. dollars with added diversification compared to U.S. bank CDs.
Yankee CD vs Jumbo CD
While Yankee CDs are issued by foreign banks in the U.S. dollar market to U.S. investors, Jumbo CDs are large-denomination certificates of deposit issued by domestic U.S. banks. Jumbo CDs typically require a minimum deposit of $100,000 and may offer higher interest rates compared to standard CDs. Both are fixed-income deposits but differ in issuer origin, regulatory oversight, denomination, and market liquidity. Yankee CDs introduce foreign bank exposure whereas Jumbo CDs concentrate credit risk within large domestic banks.
What is the minimum investment for a Yankee CD?
The minimum investment for a Yankee CD can vary but is typically higher than retail CDs, often starting at $100,000 or more, reflecting their wholesale market nature.
Are Yankee CDs insured by the FDIC?
No, Yankee CDs issued by foreign banks are not insured by the Federal Deposit Insurance Corporation (FDIC), unlike domestic U.S. bank CDs, so investors bear greater credit risk.
How is the interest from Yankee CDs taxed?
Interest from Yankee CDs is generally subject to U.S. federal income tax and must be reported accordingly. Since the CDs are U.S. dollar-denominated, foreign withholding taxes typically do not apply, but specific circumstances may vary.
