# Westpac deposit discrepancies: what are they doing?



## RobinHood (3 December 2009)

http://www.westpac.com.au/personal-banking/bank-accounts/savings/term-deposits/

Have a look at this link and you'll see that you get:

2.5% if the deposit is locked in from 4<7 months.

5.2% if its locked in for 7<8 months

2.5% on anything from 8<12months.

How does that make any sense? aren't rates supposed to progressively increase especially within a 12 month period?

...I called them and asked why: "we offer specials". 

I'm thinking they possibly need more cash/capital during certain months so they'll offer high rates for that, hence what looks like an inconsistency?


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## Temjin (3 December 2009)

RobinHood said:


> I'm thinking they possibly need more cash/capital during certain months so they'll offer high rates for that, hence what looks like an inconsistency?




You probably answered the question yourself. They may have a need for more fixed rate fundings during those particular period, and therefore, offer a higher rate. 



			
				robinhood said:
			
		

> How does that make any sense? aren't rates supposed to progressively increase especially within a 12 month period?




No, this is only an assumption based on the prediction from the futures market based on a normal yield curve . That perception could change at any moment and it could become inverted again if a second recession comes in. Then rates become "supposedly" progressively lower within a 12 month period.

But at the end of the day, yes, the bank should normally cost their rates like that if the yield curve is normal. Of course, they could do anything they want in regards to pricing anyway.


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## doctorj (3 December 2009)

Temjin said:


> You probably answered the question yourself. They may have a need for more fixed rate fundings during those particular period, and therefore, offer a higher rate.



Spot on.  Banks will try to match the average remaining tenor of their deposits and loans in order to manage their liquidity.


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## drsmith (3 December 2009)

Temjin said:


> They may have a need for more fixed rate fundings during those particular period, and therefore, offer a higher rate.



If that is the case then NAB and WBC are currently particularly keen at 12 months.


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## gooner (3 December 2009)

RobinHood said:


> http://www.westpac.com.au/personal-banking/bank-accounts/savings/term-deposits/
> 
> Have a look at this link and you'll see that you get:
> 
> ...




Nothing to do with matching cash profiles or interest rate risk, it is to do with making money. Banks will use swap markets to manage interest rate mismatch risk.

The tenor that the special is offered for frequently changes but many term deposits rollover automatically. So if you are not on your toes, you rollover to a "non-special" period and get less money. Banks rely on people's inertia on checking to make money. Thus the reason for specials at certain times. It's a bit like the accounts that pay 5.25% but only if you deposit money or make withdrawals - a headline rate is great, but product only works for the bank if enough people withdraw or forget to make a deposit.

This is not a WBC specific technique but a general bank market one. Often the special will be at the part of the yield curve that offers a higher rate "compared" to tenor


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## doctorj (3 December 2009)

gooner said:


> Nothing to do with matching cash profiles or interest rate risk, it is to do with making money. Banks will use swap



You're right - I'm obviously not cynical enough.  It's probably about making money.  That said, swaps are just one way of doing it...


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## gooner (3 December 2009)

doctorj said:


> You're right - I'm obviously not cynical enough.  It's probably about making money.  That said, swaps are just one way of doing it...




Doctor J

Nothing to do with me being cynical - I worked at one of the big 4 for a long time so know from experience how the product is managed........


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## schnootle (6 December 2009)

Another thing i don't understand about term deposits is that for the last year they have not been at all competitive with normal at call saving accounts - even though the writing has been on the wall with interest rates.

Only in the last few days have 12 month deposits hit 6.8% - more than savings accounts as i would have thought they should be to get any customers.


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## baer (21 December 2009)

They're now offering 8% interest for a term of 5 years. Anyone remember how long it has been since we have seen these sort of returns?


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## Julia (22 December 2009)

baer said:


> They're now offering 8% interest for a term of 5 years. Anyone remember how long it has been since we have seen these sort of returns?




Yep, and CBA will let me know Thursday if they will match it.


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## Bill M (22 December 2009)

8% for 5 years? That is the best I've seen too. For that rate and for the time period I would take it. I would act ASAP as they may wind it back at anytime as they have done before.


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## Bill M (22 December 2009)

RobinHood said:


> http://www.westpac.com.au/personal-banking/bank-accounts/savings/term-deposits/
> 
> Have a look at this link and you'll see that you get:
> 
> ...




Hello RobinHood, I agree with gooner, the banks are relying on inertia upon renewing the TD. I myself review my term deposits as they mature and just chase the highest interest rate at roll over time, good luck.


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## robots (22 December 2009)

hello,

is that the AMP or Citibank product?

thankyou
robots


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## Julia (22 December 2009)

Bill M said:


> 8% for 5 years? That is the best I've seen too. For that rate and for the time period I would take it. I would act ASAP as they may wind it back at anytime as they have done before.



I'm going in to do it tomorrow, Bill.  Agree that as soon as they've reached their target amount, the offer will be withdrawn.
I always keep a percentage in cash and even if the cash rate goes up another 1% or so, I'd be surprised if we see retail deposit rates at much higher than 8%.


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## Bill M (28 December 2009)

Julia said:


> I'm going in to do it tomorrow, Bill.  Agree that as soon as they've reached their target amount, the offer will be withdrawn.
> I always keep a percentage in cash and even if the cash rate goes up another 1% or so, I'd be surprised if we see retail deposit rates at much higher than 8%.



How did you go Julia, did CBA match WBC? About 8 years ago I cut out a term deposit offer from the paper by Citibank and went to my local WBC branch to try and get them to match it. A couple of phone calls later they said they couldn't do it and they had no need for it so they let me walk. Things have changed significantly now haven't they?


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## Julia (28 December 2009)

Hi Bill, no the best CBA would do was 7.2%.

Went into Westpac, duly handed over the Trust Deed from my SMSF, plus POA document which allows me to sign everything for the other Trustee, and the clerk said they would also need to 'identify' the other Trustee as a customer.
I pointed out that this has not been required at ANZ, BOQ or CBA, but she was adamant.  The other Trustee is not around at present and I don't want to put her to the trouble of rolling up to WBC with her 100 points anyway.

So left.

Suncorp are next door, so went in there and said that WBC are offering 8%, could they match it.  Girl made a brief phone call, and yes, no hesitation.
So Suncorp it is, five years at 8%.  Very pleasant and efficient, too.


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## Bill M (8 January 2010)

Well done Julia, top deal! Here is an interesting article on this subject.

-----------------

"Why bother with shares when you can get almost as much in a government-guaranteed bank?"

Full Story Here: http://blog.intelligentinvestor.com.au/doddsville/westpacs-tempting-offer/


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## akkopower (9 January 2010)

Julia said:


> Hi Bill, no the best CBA would do was 7.2%.
> 
> Went into Westpac, duly handed over the Trust Deed from my SMSF, plus POA document which allows me to sign everything for the other Trustee, and the clerk said they would also need to 'identify' the other Trustee as a customer.
> I pointed out that this has not been required at ANZ, BOQ or CBA, but she was adamant.  The other Trustee is not around at present and I don't want to put her to the trouble of rolling up to WBC with her 100 points anyway.
> ...




Hey Julia, just to prove my noobness I have a question. 
Why would you invest in a term deposit with Sun as oposed to investing in a Sun hybrid security, which are currently paying 7.8% F.F. (moves with 90 day BBSW) and an additional 6% on maturity in mid 2013?


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## Bill M (9 January 2010)

akkopower said:


> Hey Julia, just to prove my noobness I have a question.
> Why would you invest in a term deposit with Sun as oposed to investing in a Sun hybrid security, which are currently paying 7.8% F.F. (moves with 90 day BBSW) and an additional 6% on maturity in mid 2013?




As an investor of Hybrid the securities the simple answer is risk. There is no risk with a Term Deposit and it is government guaranteed. Suncorp was looking really unsafe and all their hybrids were well down up until the magic wand was waved by the Government Guarantee. In an instant the guarantee provided security again and the deposits that Suncorp needed came flowing in. The stockmarket was collapsing in a massive way and there was talk about risky loans in Gold Coast Property developments going sour, no one wanted to go near Suncorp and their shares tumbled but that was then and all is rosy again. I currently own a Suncorp Floating Rate note and it is trading at $65 which is a massive 35% loss! Personally 8% at no risk is far better than 7.8% with big risk and no guarantee. I'm not saying there is no money to be made in Hybrids, you just got to choose the right ones.


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## communique (9 January 2010)

Only one problem - the government guarantee was only put in place for a period of 3 years.  We are already one year into it.


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## Julia (9 January 2010)

Bill M said:


> As an investor of Hybrid the securities the simple answer is risk. There is no risk with a Term Deposit and it is government guaranteed. Suncorp was looking really unsafe and all their hybrids were well down up until the magic wand was waved by the Government Guarantee. In an instant the guarantee provided security again and the deposits that Suncorp needed came flowing in. The stockmarket was collapsing in a massive way and there was talk about risky loans in Gold Coast Property developments going sour, no one wanted to go near Suncorp and their shares tumbled but that was then and all is rosy again. I currently own a Suncorp Floating Rate note and it is trading at $65 which is a massive 35% loss! Personally 8% at no risk is far better than 7.8% with big risk and no guarantee. I'm not saying there is no money to be made in Hybrids, you just got to choose the right ones.



Thanks for saving me the trouble, Bill.



communique said:


> Only one problem - the government guarantee was only put in place for a period of 3 years.  We are already one year into it.



Good point, communique.


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## akkopower (10 January 2010)

Bill M said:


> As an investor of Hybrid the securities the simple answer is risk. There is no risk with a Term Deposit and it is government guaranteed. Suncorp was looking really unsafe and all their hybrids were well down up until the magic wand was waved by the Government Guarantee. In an instant the guarantee provided security again and the deposits that Suncorp needed came flowing in. The stockmarket was collapsing in a massive way and there was talk about risky loans in Gold Coast Property developments going sour, no one wanted to go near Suncorp and their shares tumbled but that was then and all is rosy again. I currently own a Suncorp Floating Rate note and it is trading at $65 which is a massive 35% loss! Personally 8% at no risk is far better than 7.8% with big risk and no guarantee. I'm not saying there is no money to be made in Hybrids, you just got to choose the right ones.




I was under the impression that an interest rate of 7.8% fully franked s***s all over 8% (7.8% F.F. =approx 11%), the 8% does compound though, but i guess u can put your hybrids dividends in a high interest savings account and get a compound effect. And u get an additional 6% on maturity. Also the hybrid interest rate will move with the interest rates, i am under the impression that they will increase by a nice margin in the next 18-36 months.

Are hybrids in SUN really that much riskier than a term deposit in SUN? The government guarantee will only last for the first 2 years of the 5 year term deposit.

I am having trouble why u guys seem to think that the term deposit is a better investment than the SUN hybrid.


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## Bill M (10 January 2010)

akkopower said:


> I was under the impression that an interest rate of 7.8% fully franked s***s all over 8% (7.8% F.F. =approx 11%), the 8% does compound though, but i guess u can put your hybrids dividends in a high interest savings account and get a compound effect. And u get an additional 6% on maturity. Also the hybrid interest rate will move with the interest rates, i am under the impression that they will increase by a nice margin in the next 18-36 months.
> 
> Are hybrids in SUN really that much riskier than a term deposit in SUN? The government guarantee will only last for the first 2 years of the 5 year term deposit.
> 
> I am having trouble why u guys seem to think that the term deposit is a better investment than the SUN hybrid.



All the points you make are valid. As I said in the original post, it is all about risk.

OK, there are some very credible high profile economists out there saying the next banking crisis will hit mid year 2010. Lets say this is true and mortgage defaults are flooding in and property developers get into trouble and Suncorp can't cope and go under then the person with the Government guarantee is protected (for 2 years) all the hybrids and shareholders would lose everything, that is as bad as it could get. Risk versus no risk is what it is all about. The first question you should ask yourself when investing in anything is, is my money guaranteed and can I cope with losing everything should the company I invest go under? By the way I am currently receiving receivership payments from a "safe and secure" company that went bust. It does and possibly could happen.


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## boofhead (10 January 2010)

Alternatively SUN does not go bust but does make some losses and unable to pay dividends and the hybrid interest. Hopefully it doesn't happen but it can happen like PaperLinx although they don't do banking.


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## enigmatic (11 January 2010)

I may be slightly stupid but then maybe not.

Don't you think there would be a reason why a bank is offering you a fixed rate at 8% for the next 5year. 

Obviously they do need a good fixed balance for some time however I would find it hard to believe that 8% which is well above the current RBA rate is there for any other reason then the banks believe in the long term rates are going to be significantly higher.. I wouldn't be surprised to see 10-14% 

Any way thats just my thoughts.
currently happy getting my 5.51% e-saver
slightly less then the good 8% however I happy to wait it out another year.

This is my opinion nothing else, please correct me if required.


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## awg (11 January 2010)

akkopower said:


> Hey Julia, just to prove my noobness I have a question.
> Why would you invest in a term deposit with Sun as oposed to investing in a Sun hybrid security, which are currently paying 7.8% F.F. (moves with 90 day BBSW) and an additional 6% on maturity in mid 2013?




Another point not noted by other replies is that rates for Hybrids are normally quoted INCLUDING the FF amount. So depending on your tax rate, hybrids can have different return outcomes. 7.8% is really 7.8% max

Also coupon is quoted on issue price..ie 7.8% on $100, so actual div is higher percent now based on $7.80/$65 price.

Various term deposit offerings at 6.8% for 12 months are good value imo

I prefer to buy hybrids at discount rate, not issue price.

The planets lined up recently for hybrids, with raising interest rates, low term dep rates and credit ratings improved following a big selldown, picked up some showing 8-10% yield, now sitting on 20-30% gains, party is mostly over now though

would be reluctant to lock much cash up for 5 yrs as the guarentee will be finished before then, even though if its ever needed we will all be stuffed anyway


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## Julia (11 January 2010)

awg said:


> would be reluctant to lock much cash up for 5 yrs as the guarentee will be finished before then, even though if its ever needed we will all be stuffed anyway



That's quite right, awg.  Before the GFC I don't think it occurred to many of us to think the government should be guaranteeing bank deposits in view of the general stability of our banking system, and the seemingly diligent role of APRA.

The government guarantee was, imo, a purely political and social move to prevent unjustifiable panic at the time.  As such it was a good thing to do.

Agree with you about locking up much cash for that period of time.  I've only done it with the proportion that I always keep in cash.


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## Julia (11 January 2010)

enigmatic said:


> I may be slightly stupid but then maybe not.
> 
> Don't you think there would be a reason why a bank is offering you a fixed rate at 8% for the next 5year.
> 
> Obviously they do need a good fixed balance for some time however I would find it hard to believe that 8% which is well above the current RBA rate is there for any other reason then the banks believe in the long term rates are going to be significantly higher.. I wouldn't be surprised to see 10-14%



You could be right.  I'm more inclined to think that the banks currently offering higher rates have a need to bring in X amount of funds to balance their books.  Then when they've achieved that level, the offer will be withdrawn. 

 For a while CBA was matching every offer Westpac made, but they stopped that about three or four weeks ago.  To me, that reinforces my theory, as I'd guess more people would deposit funds with CBA than with WBC if all other things are equal.


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## Bill M (8 February 2010)

Julia said:


> I'm going in to do it tomorrow, Bill.  Agree that as soon as they've reached their target amount, the offer will be withdrawn.
> I always keep a percentage in cash and even if the cash rate goes up another 1% or so, I'd be surprised if we see retail deposit rates at much higher than 8%.




Was down in Manly on Saturday and walked past the Westpac Bank there, it seems they have pulled the plug on the 8% for 5 years. There was a big sign in the window showing it's only 7.25% "special" rate now for 5 years. Good on ya for getting it while you could, cheers.


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## Julia (8 February 2010)

That's interesting, Bill.  I've just checked the St. George website and they have done the same.  They must have filled their current requirement for cash.


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