The rise in interest rates in recent months has created new opportunities and challenges: after years of zero or even negative interest rates, customers are starting to ask about interest on balances. Particularly clients with larger amounts may withdraw the money if no or too less interest rates are offered by the bank. The traditional savings account is usually not attractive enough and fixed-term deposits are often bureaucratically cumbersome as they have to be extended regularly.
For this reason, call account seems interesting as a money market product. The customer must cancel before availability. Conventional call accounts - such as those established on the interbank market - assume a 2-day cancelation period. A variant that is more interesting for both, banks and customers, is a call-account-31 or -32, i.e. the notice period is 31 or 32 days respectively. The interest rate is also close to the money market, and due to the normal interest rate curve, it is usually slightly better than the call-account-2.
The customer's advantage is the interest rate and yet the relatively short-term availability. The bank's advantage is also manifold: (1) planning security in liquidity management and (2) the additional advantage that no cash outflow would be applied to the invested amount in the LCR as long as the customer did not cancel: the LCR's planning horizon is above the time horizon of 30 days. If one assumes that the customer is rather inert in such a product, a non-maturing portion can also be modeled as part of bank management and thus usually improves both, the bank's interest rate and liquidity situation.
The challenge is, on the one hand, to identify and attract the right customers and, on the other hand, to establish the product interest strategy sensibly so as not to undermine alternative products such as fixed-term deposits. The aspects should be consistent with the bank's business and risk strategy, take hedging options into account and pay attention to IT processes.
We have already successfully introduced the product design, target groups, the pricing and embedding into the overall bank management process (ie transfer prices, interest and liquidity management) at banks - always with a very positive response from customers and the bank. Talk to us - we would be happy to discuss our experiences with you and to what extent such a product could also be interesting for your bank.
