Tuesday, July 1, 2008

Bank Deposit 'Frenzy'

Consumers that save their money in Deposit accounts have never had it so good. The banks are falling over themselves trying to outdo one another so that they can, either keep their existing customers happy or ebb the flow of funds to their competitors.

Naturally, if you are investment risk averse or you want to have access to short-term savings in the event of some unforeseen circumstances, this is good news.

The astute investor will also hold some of their assets in cash savings so that they can take advantage of sound investment opportunities that come their way at a later date.

But, why is all this happening now? What is the deposit taking community’s motivation for this frenzy?

We are a small nation of some 4m people and it would appear that we are relatively wealthy. The size of the deposit market would indicate that it is a worthwhile target for banks and building societies from outside the country. They would not be competing for it otherwise, right?

In an effort to delve into the psyche of the banks, it may be time to tune into their favourite radio station, Wii FM (What’s in it For Me).

 Are they suffering from pangs of guilt for previous misdemeanour's so as to create a positive profile?
 Do they think that inertia will set in once the headline rates disappear and consumers will stay put. Is it all about market share?
 Are there any liquidity concerns that we should be aware of?
 When the frenzy passes, will these deposits be ‘cannibalized’ or recycled into more profitable (for the bank) ‘Investment’ products?
 Is this a new form of ‘free’ advertising as the press scurry to announce the latest headline rate?

The jury is still out for me on this one and it is only with time that the true answer will come to the fore.

Perhaps I am tuned into the wrong radio station?

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