Tax-efficient foreign currency term deposits with Sony Bank & ANA
The news that Sony Bank is starting a stablecoin experiment triggered us to review their offerings once more, which led us down an interesting path, evaluating how different yield curve expectations have materialized in retail financial products, in this case term (or time) deposits. We also discovered an attractive option for ANA frequent fliers.
First, let us go back to the end of last year, the beginning of this year, when economists’ predictions for Federal Reserve interest rate cuts had a range from three up to six. Over the first three months of 2024, the upper range has contracted significantly, and the general consensus appears to be for three rate cuts. As a consequence, and despite the Bank of Japan giving up its Negative Interest Rate Policy (NIRP), the JPY weakened versus the dollar from around 141 at the end of last year to just over 150 now. US economic data reported over the last week has some Fed Governors even talking about “no rate cuts in 2024”.
However, at this point such opinions are (still) outliers. We have taken a look at the interest rates Citi is offering its customers, and find a peak rate of 4.64% at a six months term. This reduces to 3.68% for nine months, and 2.96% for 12 months. In other words, Citi prices in rate cuts between October 2024 and March 2025 (and further, with the two year rate and beyond being 1.98%). We will use this as our reference point.
SMBC’s Prestia aligns somewhat with the Citi offering in that the peak rate is for a six months term. However, SMBC’s differential from six to twelve months is a mere half percentage point, so you would get about 1.5% more interest for your longer term deposit in Japan. It is quite possible that you lose more than this differential, or even the 4.5% interest rate (before tax) on a strengthening yen over this period, but if you are bound to keep USD-denominated assets, this is a pretty good deal. But we can do even better!
If you have an “ANA Mileage Club/Sony Bank WALLET”, then you are able to make term deposits that pay you “interest” almost exclusively in ANA miles.
First of all, you will notice that there is hardly any difference in the points earned between six and twelve months (provided you assume interrests do not change, or more specifically, this offer does not change and you are able to re-invest your six months deposit on maturity for another 175 miles per USD). So there is no decline in rates for the longer investment period.
Second, interest is taxable, while airline miles are not (I believe that is correct for Japan, not knowing anybody who is listing PayPay/Rakuten/d-points on their tax return). If we follow The Points Guy’s most recent valuation table, ANA miles come it at 1.4 cents per mile, so that gives you a 4.82% interest rate for the twelve months term — again, tax free.
Lastly, the value of these ANA miles clearly depends on how you use them. We recently had to deal with a family emergency and procure a domestic ticket with a one day notice. In this case, there were not any discounts available on the ANA booking site, and the list price for a one-way was around JPY 28,000. We managed to book the flight with 6,000 ANA miles. That comes out to a little more than 3 cents per mile at current exchange rates. I am not going to convert this back into an interest rate as I am convinced that by now, you get the picture.
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