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Westpac deposit discrepancies: what are they doing?

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RobinHood

RobinHood

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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?
 
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?
Click to expand...

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

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?
Click to expand...

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
 
gooner said:
Nothing to do with matching cash profiles or interest rate risk, it is to do with making money. Banks will use swap
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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...
 
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...
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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........:D
 
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.
 
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?
 
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?
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Yep, and CBA will let me know Thursday if they will match it.
 
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.
 
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:

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?
Click to expand...

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.
 
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.
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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%.
 
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%.
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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?
 
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.
 
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.

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.
Click to expand...

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?
 
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?
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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.
 
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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