# Rabo Direct not disclosing deposit penalties



## behanl (16 Mar 2011)

Hi all, I would like to know if anybody has had experience with breaking a term deposit at Rabodirect. I am looking to deposit cash with Rabo in a 10 Year deposit account @ 4.4%. However, when I asked them about how penalties are calculated “should one need to break the term for any reason”, they said it was done on a case by case basis. I then asked them if any said penalties could be applied to the actual principle on deposit and I was told they could be. I was amazed at this so I called the Financial Regulator to see was this legal and they said it is. The Financial Regulator said if penalties are applied to the account I would only be entitled to a breakdown of how the penalty sum(s) were arrived at. I have a cash deposit with TSB at present and they clearly have a formula for penalties on deposit accounts closed early, so you know where you stand. I thought this was the norm. So if anybody on this forum has had an experience with Rabo, can you please give you opinion? Thanks


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## messyleo (16 Mar 2011)

I contacted them about this before and got told the exact same. So decided against it. So much for the 'no sneaky stuff' promise imo. It is a pity as I have found them excellent in every other respect.


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## Bobby1 (16 Mar 2011)

In fairness, you are looking to lock your money away in a fixed deposit , obviously because you are attracted to the rate of interest, you cant expect them to be pretty much advertising ways you can access your money, it defeats the purpose of a fixed account if your looking for access! Why dont you deposit a portion in the 10 year and keep another portion in a shorter term account?


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## Guest105 (16 Mar 2011)

I think the interest rate offered by Rabo is far too low to be tieing up your cash for a 10 year period especially given the current climate where the outlook for interest rates is only going one way and that is up.


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## RaboDirect (16 Mar 2011)

Thanks to all for your feedback on our term deposits and the rules around breakage of same. 

Breakage costs for term deposits are worked out as follows: 

We look at the actual term and the length of time left to run on the term deposit. And we look at the rate which was available when a customer opened the account versus the rate that applies for the same term at the time the customer is looking to break the term deposit.

If a customer calls us to enquire about what the breakage cost will be, we can only ever give an estimate, as the prevailing rate can change from one week to the next.
We do state in our terms and conditions that costs apply when you withdraw from a term deposit and advise that we will notify you of the amount of the cost in advance of breaking the term. 

We have taken on board your feedback and we will review our website in respect of the comments made.

But just so we’re clear, at RaboDirect we do work extra hard to ensure that our customers are not subject to excessive charges or fees and where we do have to apply these, we make every effort to ensure that they are considerably lower than what’s often available from our competitors. 

RaboDirect


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## Guest105 (16 Mar 2011)

Hello representative of Rabodirect, it is nice to see you commenting on this site.  Can you tell us if you intend to raise interest rates anytime soon on  your deposit accounts as your rates are pretty abysmal at the moment??


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## horusd (16 Mar 2011)

cashier said:


> Hello representative of Rabodirect, it is nice to see you commenting on this site. Can you tell us* if you intend to raise interest rates anytime soon on your deposit accounts as your rates are pretty abysmal at the moment??*


 

I was thinking this too. I still have a Rabo acount, but stopped depositing money in it for better rates available elsewhere. Good to see a RABO rep on here tho. A few other institutions would do well to follow suit.


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## marksa (16 Mar 2011)

cashier said:


> Hello representative of Rabodirect, it is nice to see you commenting on this site. Can you tell us if you intend to raise interest rates anytime soon on your deposit accounts as your rates are pretty abysmal at the moment??


 
I call this risk/reward. 
Rabo are AAA rated (same as German government). They 4.40% which is above the 10 year German Government Bond yield of approx 3.30%. 

On the other hand ultra-risky Irish banks are paying Joe Punter an "abysmal" 3.60% for cash, albeit at a shorter term such as 1 year. Irish Government bond yield for 10 years is 9.50%. Is there any Irish bank offering even close to this kind of return? In my opinion, Irish Government-guaranteed banks such as AIB, Bank of Ireland, and PTSB should be paying a much higher rate to reflect the riskiness of the Bank (Government). But hey - that's why 10's of billions of deposits have left the banks.


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## Lightning (17 Mar 2011)

RaboDirect said:


> Breakage costs for term deposits are worked out as follows:
> 
> We look at the actual term and the length of time left to run on the term deposit. And we look at the rate which was available when a customer opened the account versus the rate that applies for the same term at the time the customer is looking to break the term deposit.



Thanks for your contribution Raul. 

It is still unclear as to the exact methodology you apply to breakage charges. I would encourage you to openly publish the full formula that you utilise even if it is complex and depends on variable components.


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## behanl (17 Mar 2011)

OP

Hi All,
First off, thanks for participating in this discussion and thanks to Rabo for pitching in.

Well a senior Rabo rep came back to me again yesterday and presented me with a likely scenario of the cost to break at say 3 years if an emergency arose and you needed your cash. . It was actually quite low, 500 euro. But this is a moving target and is linked to the current “rate” whatever that means (was not explained) and she warned it could also be much higher and eat into you actual capital sum. I get the impression Rabo is taking the cash on deposit and lending it out at a much higher rate. I would now assume that if the market rate they get drops and they are still paying you 4.4 but they are now getting less in the market you could be hammered for the difference. It sounds to me like the deposits are funding Rabo to both lend to say the ECB for struggling countries (PIGS) or such and to hold market positions. Imagine this - (a) you deposit with them, (b) the lend to the ECB or a German bank and (c) they in turn lend to Ireland or (PGS) and Ireland or (PGS)defaults, your back whre you started. Hmmm!!!


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## messyleo (17 Mar 2011)

Yes - the fact that the OP was told his principle could be subject to penalties as well would warrant some clarity imo


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## Lightning (17 Mar 2011)

marksa said:


> I call this risk/reward.
> Rabo are AAA rated (same as German government). They 4.40% which is above the 10 year German Government Bond yield of approx 3.30%.
> 
> On the other hand ultra-risky Irish banks are paying Joe Punter an "abysmal" 3.60% for cash, albeit at a shorter term such as 1 year. Irish Government bond yield for 10 years is 9.50%. Is there any Irish bank offering even close to this kind of return? In my opinion, Irish Government-guaranteed banks such as AIB, Bank of Ireland, and PTSB should be paying a much higher rate to reflect the riskiness of the Bank (Government). But hey - that's why 10's of billions of deposits have left the banks.




Good point Mark. 

The 4 Irish banks need to pay a risk premium to deposit holders to attract deposits. With market paying 9.70% for 10 year Irish debt and 2 year Irish debt rates doubling in recent weeks, logically, the risk premium should be significantly over current deposit rates.


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## behanl (17 Mar 2011)

gravitygirl said:


> Yes - the fact that the OP was told his principle could be subject to penalties as well would warrant some clarity imo


 
PTSB where I have deposit at present gave me clarity. They have an actual formula which you can calculate yourself and the principle is never affected. It is part of the T&Cs when you take a term deposit. RABO is a moving target unfortunately


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## behanl (17 Mar 2011)

CiaranT said:


> Good point Mark.
> 
> The 4 Irish banks need to pay a risk premium to deposit holders to attract deposits. With market paying 9.70% for 10 year Irish debt and 2 year Irish debt rates doubling in recent weeks, logically, the risk premium should be significantly over current deposit rates.


 

You so right CiaranT. But then again these are the clever people who got it all so right up to know. Didn’t They?

On a serious note, if the government and banks had any brains they would (a) scrap DIRT (b) offer deposit rates well above EU competitor rates and design T&Cs that match the substantial risk of depositing here. 

This I believe could lead to the Irish banks stemming the outflow of deposits and polarise a inflow of EU depositor cash into the banks here. 

Benefits could be (1) alleviate the need for the state to continue propping up the balance sheet of our banks trying to meet Deposit to Loan ratios, they could do it themselves (2) allow the government to detach totally from the banks and separate the tax payer from any further risk (3) allow the government to concentrate solely on sovereign debt which could now be raised on the market and used for growth and job creation. JMPW


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## behanl (17 Mar 2011)

If anyone is interested, have a look at the site noted below in this post, it shows historic rates back to the 70s - 1980s are very interesting when the last major downturn happened.


tradingeconomics.com/ireland/deposit-interest-rate-percent-wb-data.html


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## Lightning (18 Mar 2011)

behanl said:


> PTSB where I have deposit at present gave me clarity. They have an actual formula which you can calculate yourself and the principle is never affected. It is part of the T&Cs when you take a term deposit. RABO is a moving target unfortunately



I think it is fair for a bank to take a small penalty off the principal, if the withdrawal is at the very early stages of the term deposit period.


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## Lightning (18 Mar 2011)

behanl said:


> (b) offer deposit rates well above EU competitor rates and design T&Cs that match the substantial risk of depositing here.



The Irish banks need to cop on to themselves about why they are not taking greater deposits. Their age old strategy of taking advantage of inertia and paying low rates their 'lazy customers' for deposits needs to change. Why on earth would people keep money in a, for example, 2.5% PTSB instant access account, with all the risks that go with having deposits in Irish banks, when can get a lower risk 3.00% Nationwide UK or NIB account? etc etc etc. 

Irish banks need to look at the highest rates on offer from foreign banks for instant access then price match, then add a risk premium and review the rates at least weekly. 

Similarly, Irish banks need to look at the highest rates on offer from foreign banks for term deposits for all periods then price match, then add a risk premium and review the rates at least weekly.

The rates can be offered via segregated divisions that deal with customers through direct channels cutting out high branch admin costs.


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## JoeB (18 Mar 2011)

If the principle can't be touched then people can exit and only lose any interest due.. this might be quite small for a few weeks or months.

I feel it's odd that Rabo don't have to give  out a formula. It means that they can change the formula at any time. A term holder can die, and in that event it's not clear what the charges might be.

As the rate available at time of breakage is used in the formula then if interest rates rise the breakage fee may also become very large.


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