How to Open a Bank Account that Pays 16%

I just opened a bank account that pays me 16.2% annually.

All I had to do was deposit a minimum of $180. I got the one-year time deposit, which means I have to leave the money alone for a year. But if I decide I want my money back sooner, I still get the “default interest rate” of 4%. That’s a lot more than I get back home, which is pretty much nothing.

You can open such an account too. But it’s not easy. If it were easy, then the opportunity would’ve disappeared already. And there is a catch.

What’s the catch? Well, it’s in a bank in Mongolia. And there is no deposit insurance. It’s a speculation on a booming country and a currency — the Mongolian tugrik — that could be one of the best performers against the U.S. dollar over the next year or two.

I think of it as buying a stock that pays me 16% per year with the potential for added capital gains if the tugrik rises against the dollar. In what follows, I’ll tell you more about my trade and how you can do it too.

Since peaking at around 1,600 tugriks to the dollar in 2009, the “tog” (the “o” being pronounced like the “o” in “toad”), as it is called in the streets of Ulaanbaatar, appreciated to 1,200 in early 2011. (It was the world’s best-performing currency against the U.S. dollar in 2010.) It’s weakened since to about 1,318 per U.S. dollar, creating an opportunity.

The Mongolian economy is a resource-driven story. As such, the fall in commodity prices for most of the second half of 2011 and the first half of 2012 has also hit commodity currencies. Moreover, it’s an election year in Mongolia. The inevitable political drama has also taken a bit of the starch out of the tog.

But the growth in Mongolia seems virtually assured, and that’s bound to put a lot of upward pressure on the tog, as people need it to pay workers, settle contracts, etc. The law requires all transactions settle in togs. Hence, as the economy grows and transactions multiply, the demand for togs should be strong as well.

I know I’ve written to you a lot about Mongolia’s growth. I feel I’m repeating myself a bit. But if I had to distill it down to an essence, it’d be this: Mongolia has about an $8 billion economy. There is $13 billion going toward the development of just the seven largest mining projects by 2013. The economy could easily double in the next couple of years. It is the fastest-growing economy in the world.

As has happened in other resource economies — think Australia — the currency should appreciate.

There are risks, of course.

A lot of people worry about what happens to Mongolia if China goes kaput. After all, Mongolia’s resources feed China’s. As one investor put it to me, “Mongolia is an umbilical cord to China.”

Logically, China would cut its consumption of commodities. But it would cut first those coming from distant and more-costly suppliers, such as Australia. Mongolia is the low-cost producer. Mongolia is just across the northern border of China. That should insulate it some from commodity price declines and falling demand.

There are other risks. The currency exchange rate could move against you for whatever reason — excessive money printing or something else. Or you could have a banking crisis and lose your deposit altogether. But you take these kinds of risks in speculative stocks anyway. That’s why I think of owning tugrik deposits as owning a speculative stock that pays 16%. I’m OK with that.

Why are interest rates so high? The economy is starved for capital. Banks have huge demand for loans, but not much capacity to lend. The capital markets are not developed. The stock market is still a toddler. And there is no venture capitalist community or the other deep pools of capital that exist in the West. The great mining projects suck up most of the capital.

That is why rates are so high. There is tremendous competition for funds. Over time, rates should ease as more capital flows into the country. For now, though, there is a great window of opportunity.

I’m bullish on the tugrik and I like the idea of owning a 16% deposit. I would risk only money you can afford to lose — just as if you were speculating on some mining stock. But my bet is that this account will outperform those speculative penny stocks you like to dabble in.

You can open a brokerage account and a bank account without physically being in Mongolia. I’d suggest you do both at the same time. The brokerage account will allow you to buy Mongolian stocks if you choose to do so at some point. There is no cost to opening an account, so you might as well do both. I did.

How to do it?

Here is a checklist of what you’ll need:

  • A notarized copy of your passport/ID
  • An Individual Account Opening Form
  • A Power of Attorney form, for the trader to sign order tickets
  • A bank deposit account form
  • A photo.

Golomt Bank is one of the largest banks in the country. (I met with three of the four.) Of these, Golomt seems to offer the easiest process for you, assuming you are not going to Ulaanbaatar anytime soon. My contacts are at Golomt Securities, the newly opened brokerage arm of the bank. They are eager for business, and I’ve found them responsive. (Keep in mind the time difference between wherever you are and Mongolia.)


Chris Mayer