do retail banks trade savings deposits?

[John_Galt]

Looking at a local banks web site I noticed that they offer you the following rates on deposits:

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

5.2% if its locked in for 7<8 months

and 2.5% on anything from 8<12months.

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


I would expect a progressive increase in rates, especially within a one year time-frame. Why are there random increases in some time ranges? e.g. 3<4 months is 4.2% so why would anyone want to lock money in for 5 months to get 2.5%??

I realise that the rates are "subject to change" but what exactly is the change of a large drop and a quick recovery all within a few months? so why this apparent inconsistency?

do retails banks somehow make derivatives of these deposits and then trade them?

 

[songcon]

Looking at a local banks web site I noticed that they offer you the following rates on deposits:

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

5.2% if its locked in for 7<8 months

and 2.5% on anything from 8<12months.

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


I would expect a progressive increase in rates, especially within a one year time-frame. Why are there random increases in some time ranges? e.g. 3<4 months is 4.2% so why would anyone want to lock money in for 5 months to get 2.5%??

I realise that the rates are "subject to change" but what exactly is the change of a large drop and a quick recovery all within a few months? so why this apparent inconsistency?

do retails banks somehow make derivatives of these deposits and then trade them?

It seems to be a typo on the rate for the 7-8-month term

 

[Glenn]

do retails banks somehow make derivatives of these deposits and then trade them?

If you've read Atlas Shrugged then you'll know how crazy things can get.
Maybe if you watched these 5 videos you'll have a better handle on Banking things.

www.youtube.com/watch?v=mIIAvdJvCes

They won't answer your specific question, but at least you'll see behind the scenes.
Wear brown corduroy trousers though.
Credit to someone else who posted it on T2W.
Glenn

 

[Martinghoul]

Looking at a local banks web site I noticed that they offer you the following rates on deposits:

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

5.2% if its locked in for 7<8 months

and 2.5% on anything from 8<12months.

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


I would expect a progressive increase in rates, especially within a one year time-frame. Why are there random increases in some time ranges? e.g. 3<4 months is 4.2% so why would anyone want to lock money in for 5 months to get 2.5%??

I realise that the rates are "subject to change" but what exactly is the change of a large drop and a quick recovery all within a few months? so why this apparent inconsistency?

do retails banks somehow make derivatives of these deposits and then trade them?

Banks used to trade depos in the unsecured mkt, but that's more or less dead now... The bank doesn't have to trade a derivative on your deposit. A fixed-term deposit you make with them is, essentially, a bond that they have issued directly to you with a certain fixed rate. They can hedge the interest rate risk of a whole bunch of these bonds by going into the swap mkt (they would recv fixed at a rate higher than the one they offer to you; this means they are not exposed to rates and just make money on the spread).

In answer to your question, the fact that the rate on longer-dated deposit drops doesn't make any sense, given the term structure of AUD rates.

BTW, I find the video, as well as other attempts to 'debunk' fractional-reserve banking somewhat silly.

 

[John_Galt]

It is not a typo for sure. I called them up and asked why.
the answer is: "we offer specials sometimes".

I know I'm not going to get any technical answer involving derivatives from a clerk so nothing I'm looking for. WHYYYY???

 

[John_Galt]

are they possibly investing the deposits in varying instruments?

 

[HawkTrader]

are they possibly investing the deposits in varying instruments?

Maybe they're just having a quick gamble on the horses.

 

[Martinghoul]

are they possibly investing the deposits in varying instruments?

It's clear from the table that they are simply trying to encourage you to invest in particular terms (i.e. they want 4M and 8M terms, but don't want 5M and 6M). This could be due to the current structure of their deposit book (i.e. it smooths their duration profile). On the other hand, it could be that they have better mkt liquidity in 4M and 8M points, which allows them to hedge the rate risk more efficiently in those terms and, as a result, offer you a better rate. I am inclined to believe that it's the former reason, rather than latter.

 

[gooseman]

martin-whilst you are here; any thoughts on ecb later? link the refi rates/spread on the ltro?

 

[Martinghoul]

No, don't think so, goose... Think it's steady as she goes. Why don't you join the chat room, as it's been discussed there ad nauseam.

 

[gooseman]

interesting sell-off this morning....

will probably avoid to be fair-i'll just get distracted. it doesn't take much!

 

[Martinghoul]

Fair 'nuff... I think selloff is on the back of everything else + clear the decks for young Jean-Claude. Sorta makes sense, given just how crowded of a trade this long fronts is.

 

[gooseman]

yeah-market so nervous of any hawkish chat too. lacker was a bit keen last night.... plenty of carry there if you cna stomach it.

 

[Martinghoul]

plenty of carry there if you cna stomach it.

Famous last words, those...

 

[gooseman]

options not futures ;-)

 

[gooseman]

well that was all very exciting....

 

[Martinghoul]

After all the sturm und drang, it's steady as she blows...

 

[gooseman]

yep. gamma-tastic.

 

[Johnny B. Goode]

It's clear from the table that they are simply trying to encourage you to invest in particular terms (i.e. they want 4M and 8M terms, but don't want 5M and 6M). This could be due to the current structure of their deposit book (i.e. it smooths their duration profile). /QUOTE]

This is absolutely the correct answer. They are trying to avoid concentration of maturities in their term deposit book. The question that should be asked is whether or not such high rates on retail deposits make sense given where the wholesale bank bill market is.