Wednesday, April 06, 2005

ING Direct + a Nifty Idea!

In the light of recent infatuation with ING Direct Saving Account, which is thoroughly discussed here, I decided to give it a shot. I applied on for a canadian account earning 2.40% Annual Percentage Rate (APR). Just today I mailed them a cheque with the initial deposit.

What do I see when I come home? I read here that ING in the States gives 3% APR, something that I overlooked. So I decided to make a little analysis, what would it cost me, were I to invest in the American ING account, exchange rate taken into account.

The data for the calculation:
American ING APR = 3% = .03
Canadian ING IPR = 2.40% = .024
Canadian/American exchange rate => US$ 1 = CAN$ 1.2178 as of April 5th closing by Bank of Canada.

APR = [(amount acumulated at time 1) - (initial investment at time 0)] / (initial investment at time 0)

If I were to invest in Canada, $1 at 2.4% APR will earn me CAN$1.024 at the end of the year.

If I were to buy US$ for that CAN$ 1, it would be $0.821153, and invest it in US at 3% APR, I would get US$0.845788 at the end of the year.

Here's the interesting part -- according to the Big Mac Index, discussed in my previous post, the target exchange rate between Canada and US should be 1.207547. Let's assume that, after one year, the exchange rate converges to its correct state, the one given by the Big Mac Index. So if converted back to Canadian currency, my ~84 cents US would be $1.02133 Canadian, which is less than what I would get at the end of the year investing in ING Canada.

Point proven, I did the right thing by opening a Canadian account!!!

Second order of business is the point made by my Corporate Finance professor.
Ideally, in a publicly traded corporation, one share gets you one vote as a shareholder (or equivalent proportion). She suggested a hypothetical idea that it should be the same way with voting in elections. The percentage of taxes you pay of total amount of taxes paid in the country, gives you the right to have the equivalent percentage of votes, when voting for the president, prime minister or whoever. Isn't that an idea worth investigating???