Optimizing Liquidity & Interest Rate Risk with Call Accounts

The recent rise in interest rates has introduced both new opportunities and challenges. After years of zero or negative rates, clients are now inquiring about interest on their balances. Particularly those with larger sums may consider withdrawing their funds if banks offer little or no interest. Traditional savings accounts are often not appealing, and fixed-term deposits can be cumbersome due to the need for regular renewals.

As a result, call accounts are becoming an attractive money market product. These accounts typically require the customer to provide notice before funds become available. Conventional call accounts, like those on the interbank market, often have a 2-day notice period. However, a more appealing option for both banks and customers is the call-account-31 or call-account-32, which offers a 31- or 32-day notice period. The interest rates for these accounts are close to money market rates, and thanks to the normal interest rate curve, they are usually slightly higher than the 2-day call account.

For customers, the advantage lies in the interest rate combined with relatively short-term availability. For banks, the benefits are twofold: (1) increased planning security in liquidity management, and (2) the ability to exclude cash outflows from the invested amount in the LCR as long as the customer does not cancel. This is because the LCR planning horizon extends beyond the 30-day time frame. If the customer is generally inactive with such products, the non-maturing portion can be included in bank management, improving both interest rates and liquidity.

The challenge is twofold: identifying and attracting the right customers, and establishing a product strategy that does not undermine alternatives like fixed-term deposits. The strategy should align with the bank's overall business and risk goals, incorporate hedging options, and be mindful of IT processes.

We have successfully implemented product design, target group identification, pricing, and integration into broader bank management processes (such as transfer pricing, interest, and liquidity management) at various banks, always receiving positive feedback from both customers and the bank.

If you're interested, we would be happy to share our experience and discuss how such a product could benefit your bank.