Rabo term deposits

Was taking a look at these offerings this evening, and I think I'm missing something. Currently I'm getting what 2% on my savings account with Rabodirect, but to get an equivalent rate with the term deposits, I have to lock my money away for at least 18 months (they offer shorter terms, but at reduced rates).

I just don't know why anyone would put their money away where they can't get it for 6 months and only get a rate of 1.15%, nearly half what the savings account is offering. Is it possible that the term deposits are less susceptible to rate drops, etc? The only thing I can think is that not everyone can get a Rabo savings account? What am I missing?

PS I know I can get betters terms and rates elsewhere, this was really just for a question of 'why are Rabo even offering these accounts?'

Hi Billy-Bob,

No you're not missing anything - they are pretty pointless accounts. In theory, the interest rate on the savings account could drop to 0.1% tomorrow and in that case, assuming you didn't move the cash, you would be better off with the 6 month account at 1.15% (this rate can't change until the term has expired). That scenario is fairly unlikely and i presume that Rabo don't expect or want many to go for these options but it's there as an option if needed.

Caoimhe

Thanks, caoimhe, that's what I thought alright. Good to know that term deposits rate are locked in until they mature, though. Of course it doesn't help to know that rates used to be around 5.25% for the 6 month term, but isn't that the way everything's going.

It make no sense that an instant access rate is below a term deposit rate unless you expect big drops in the ECB rates ... or something else is going on.

I spoke to someone who works in Rabo about this before. The person who works for Rabo told me that they are dependent on what Rabo Netherlands require.

Basically, Rabo Netherlands can only get good rates of return using deposits locked for 2 years or more. Hence, Rabo are essentially out of the market for term deposits under 2 years and only compete in the market for term deposits of 2 years or more.

This part explains what is going on.

It's about customer inertia, tomorrow Rabo could cut the rate on that instant access product to e.g. 0.75% and about half the money will stay there because Irish people are lazy about moving their money around - why else are there still so many people with savings in AIB/BoI/Anglo.

What Rabo could do then is offer a new instant access acc e.g. paying 2.25% and some customers will move their money out of the old one into the new one. In the meantime, the fixed term rates cannot be varied.

In practice, what will happen is that as short-term market rates increase, Rabo (and most other banks) most likely will not pass through those increases to the instant access account and will instead make new offers on e.g. fixed term deposits. So don't be surprised if the Rabo instant access is still paying 2% in a year's time, when short-term overnight rates have increased from their current levels of approx 0.70%
http://www.euribor-ebf.eu/euribor-eonia-org/about-eonia.html. So at the moment, Rabo are paying up 1.30% over the overnight rate, and overnight rates are forecast to hit 1.25% by approx september of this year. It is unlikely that Rabo will increase their rates from current 2% to e.g. 2.50% in september - but I could be wrong!

One other point - you will notice I mentioned nothing about ECB, as realistically Rabo's funding costs are nothing to do with ECB, they do not pay ECB (1.0%) for funds on the Interbank market. As a AAA rated bank they would be paying below the 0.70% overnight rate mentioned above. A typical Irish lame duck bank would be lucky to get cash interbank overnight at 1.50%.

You can check out our latest On-Demand Personal Savings rates here:

[broken link removed]

Variable rates by nature change and because of this we give our customers 2 months notice before reducing rates. This gives our customers time to shop around.

Note: We have no plans at present to reduce our On-Demand Personal Savings rates.

RaboDirect said:

Variable rates by nature change and because of this we give our customers 2 months notice before reducing rates. This gives our customers time to shop around.

Click to expand...

Well done Rabo for giving your customers 2 months notice of any change. Good fair treatment.

Very few other banks do this except PTSB.

Ulster Bank also give customers 60 days notice if variable rates are decreasing.

odi said:

Ulster Bank also give customers 60 days notice if variable rates are decreasing.

Click to expand...

PTSB post changes on their website in advance. Rabo do the same.

For Ulster, how do they notify customers in advance? Is it by postal letter? Thanks.