by Richard Benkert

Credit Unions in Panama pay up to 9% fixed interest on retirement plans

I know, it “sounds too good to be true” to earn 9% fixed interest on your retirement plan. That’s what everyone says when they hear 9% fixed interest. How can anyone pay such high rates? The answer is simple: “by charging 14.4% to borrowers”. 14.92% is the national average that US banks are charging for credit card interest rates, yet US banks pay their depositors a pathetic 1% to 2% interest.

What we are referring to here is not a time deposit at a bank, rather a US Dollar time deposit at a credit union – located in Panama – and Yes, it pays 9% compounded interest on US Dollar retirement savings accounts, and has been doing so for 44 years now, without a hitch.

It is common knowledge and common sense that diversification of your retirement investments is one of the most important aspects of retirement planning, and is paramount to the safety of your retirement portfolio. However, few financial advisors recognize the importance of Jurisdictional diversification of your retirement investments.

By diversifying into fixed income investments in a democratic, financially and politically stable, high growth economy in a foreign jurisdiction like Panama, you can accomplish the jurisdictional diversification that your retirement portfolio needs.

Credit unions in Panama are government regulated, non-profit organizations, that offer savings accounts, time deposits, and retirement savings accounts – just like banks do. The primary difference between banks and credit unions is the ownership structure and risk exposure.

In terms of ownership structure, banks have shareholders who demand dividends, where as credit unions have members. The members are the depositors, who capitalize the credit union by paying small monthly dues (from $5 to $10) which are deposited to the paid-in capital of the credit union. The capital paid by each member is paid back to the member when he or she resigns their membership. Members are also the borrowers and customers of the credit union.

In terms of risk, banks are permitted to borrow up to 10 times the amount of their paid in capital, where as credit unions are limited to borrowing only up to 4 times their paid in capital. Banks are highly exposed to international interest rate fluctuations, whereas credit unions have very limited risk to rate changes. Plus, banks take high risks issuing large commercial loans for millions of dollars to real estate developers or other businesses, while credit unions are limited to making small personal consumer loans averaging around $3000 per loan with maximum loans of $30,000 per member. The credit union loan payments are direct debited from the members’ government salary, with a loan insurance policy covering job loss or death. As a result, credit unions have historically had very low loan default rates.

There are over 180 active credit unions in Panama, a few of which are as large as some banks in terms of assets. Most Panamanians save with credit unions because they offer better interest rates, no banking fees, and more benefits than banks can offer. Credit unions provide their members with benefits such as free limited life insurance, free limited disaster insurance, free limited dental insurance, free limited funeral insurance for members immediate family members, and educational scholarships for members’ children.

In terms of assets, Panamanian credit unions are growing more than ever before thanks to Panama’s strong economy, fueled by Panama’s ambitious infrastructure investments, efficient tax system, and the US Dollar as Panama’s circulating currency, giving the country additional stability and less risk. Over the next 5 years, the Panamanian government will have invested over $13 billion in infrastructure, including the expansion of the Panama Canal, shipping ports, free trade & special economic zones for import/export, highways, airports, bridges, oil pipelines, hydro-electric and alternative energy plants, all of which are providing more jobs for Panamanians while bringing more multinational companies to Panama.

More than 125 multinational companies are now firmly established here, including names like Caterpillar, 3M, Dell and Procter & Gamble. By end of 2012 over 200 multinational corporations will have made Panama their regional headquarters. Panama now enjoys a low 4% unemployment rate, the lowest in the country’s history.

While bankrupt US and European banks are being bailed out by their governments, Panama’s banks and credit unions have weathered the global economic storm remaining highly liquid, very profitable, and financially strong. The economy of Panama has been the star of Central and South America, consistently growing over the last 10 years, with over 10% growth in 2011.

In terms of foreign investment, Panama is the #1 recipient in Central America. Panama is considered a banking safe haven by Central and South American investors, the same way Europeans consider Switzerland, or Asians consider Hong Kong, mainly because Panama has maintained a highly regulated, conservative, and reliable banking system that is tried and proven, even during tough economic times.

Currently, credit unions in Panama are paying from 3 to 4% compounded interest on US Dollar savings accounts, from 4 to 8% fixed interest on 1 to 5 year time deposits (certificates of deposit or “CD’s”), and up to 9% compounded interest on 5 year retirement savings accounts. The Panamanian government does not tax any interest income (However, US citizens must voluntarily declare all interest earned abroad on their US tax declarations).

Account holders have the option to setup their Credit union accounts in their personal name, or in the name of a Panama Corporation or Panama Private Interest Foundation, for asset protection and more privacy in their financial dealings. U.S. citizens are welcome.

Opening an account is quick and easy. The requirements include a photocopy of passport, second ID (such as a drivers license), proof of address (utility bill, rental contract, etc), and a financial reference letter (or financial account statement). A minimum initial deposit of only $20 is required.

Editors Note: For additional information on this and similar topics, please see www.premieroffshore.com