What is a Yankee CD?
A Yankee CD is a certificate of deposit issued by a foreign bank in the United States and denominated in U.S. dollars.
How Does a Yankee CD Work?
For example, let's assume Bank ABC is in Spain and issues CDs in the United States that are denominated in U.S. dollars. Bank ABC partners with an American bank to issue these Yankee CDs in the United States. In some cases, a bank issues its CDs in a number of international markets.
Like other bonds, Yankee CDs obligate the borrower to pay a certain interest rate and principal amount according to the terms of the indenture. The typical minimum face value of a Yankee CD is $100,000.
Why Does a Yankee CD Matter?
Yankee CDs are advantageous to banks if they make borrowing cheaper than other forms of debt. Yankee CDs also help foreign banks tap into the very large U.S. market.
Investors often like Yankee CDs because they offer geographic and currency diversification as well as lower risk. (However, the rates on Yankee CDs are typically low.) Investors also get dollar income streams, which they might use to pay other dollar-denominated obligations. Exchange rates can change quickly and dramatically, however, which may affect the total return for some investors.