Why do regular savings accounts have higher interest rates?

T

thesmiler

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Hi!
One question I never found an answer to:
Why do regular saving accounts have a higher interest rates with most bank then on-demand or fixed-term accounts?

Is it a loss-leader to get money into the bank or is there some other reason why banks would pay a much higher interest to one product than to the others (especially since at least limited amount of withdrawals are allowed with most products)?
 
thesmiler said:
Hi!
One question I never found an answer to:
Why do regular saving accounts have a higher interest rates with most bank then on-demand or fixed-term accounts?

Is it a loss-leader to get money into the bank or is there some other reason why banks would pay a much higher interest to one product than to the others (especially since at least limited amount of withdrawals are allowed with most products)?
Click to expand...

Not sure but would guess its related to the fact that the amount you can deposit to regular saver is usually fairly limited so they have a good cap on what they have to pay out whereas the fixed deposit limits are usually much higher deposit limits..
 
By their nature you have less money in them for the same time period e.g. putting €12k in a normal deposit account at 4% on 1 January results in interest of €12k x 4% for a full 12 months. Put €1k in a regular saver account per month at 5% looks like a better deal, but you're only getting 5% on €1k for 12 months, 5% on the next €1k for only 11 months etc. so that for the last €1k you're only getting 5% divided by 12.
 
it is also probably related to the fact that the bank knows what it will be getting in for the next year and use this in their cash flow projections,

You are getting a bonus for planning ahead.

In a demand account, you are paying a price, in lower interest rates, for the service of being able to get your money back with no notice.
 
Some Reasons ...

1.) "The Land Grab"
- Offer a high interest rate today on tiny amounts to get more customers from other banks.

2) High Today, Low Tomorrow
- Offer a high rate today & guarantee it for a short period and drop the rate later and hope that majority of customers don't notice or ensure they are locked and can't get out.

3) Marketing
- Some of the older banks often used to give the illusion that a bank is offering competitive rates when they are really just a headline rates and most of their other rates are totally uncompetitive.

4) Interest is so low on these small amounts they can offer higher rates on that basis.

5) In the current market banks are desperate for deposits and are willing offer historically abnormal high rates (often over ECB+4%) as they need as much cash as possible.

Unless you are willing to open numerous accounts for small interest then you are best sticking with fixed term or on demand.
 
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