Circle of Trust

Those placing funds in cash are still spooked by how close the financial system came to meltdown in 2008 with institutional security the core driver behind the destination of where placements go.

Safety remains the biggest influence with interest rates paid on deposits a distant second in importance, according to new research.

Over one third of respondents, or 34.8 per cent, voted the banks ‘security’ as the number one factor when choosing a deposit account, with the ‘interest rate paid’ the most important by just over a fifth at 21.6 per cent, according to the CoreData Online Deposit Report 2009.Some banks though have opted to use the interest rate paid to lead their marketing campaigns, with what has been termed ‘promotional rates’.

Promotional rates pay a higher return for new funds deposited, either from existing clients or new customers.

Bankwest and ING Direct have been big on the promotional rate strategy, yet their well below deposit book growth displays little success.

The ING Direct retail deposit portfolio actually fell $516 million or 3.1 per cent to $16.5 billion, in the twelve months to February 2009, according to the latest household deposit data from the Australian Prudential Regulation Authority (APRA).

Bankwest has faired a little better, boosting deposits by $824 million, or 5.9 per cent to $13.9 billion over the same period.

Commonwealth Bank, market heavyweight and perceived safest bank, in contrast boosted deposits by 20 per cent, or $24 billion to $122 billion, for the year to February 2009.

System growth for Australian Deposit-taking Institutions (ADI’s), (excluding mutuals), soured 19 per cent, or $81 billion to $419 billion for the same period, highlighting how unsuccessful the promotional rate pushes have performed.

The CoreData Online Deposit Survey also identified ‘low fees’ as the third most important factor for respondents with 17.1 per cent, although many financial institutions offer online deposit accounts with no fees, with interest accrued daily regardless of balance.

The fourth significant response identified was ‘total package’ with 13.6 per cent, which are the all you can eat style accounts, with ‘service’ and ‘reputation’ recording little importance with 6.4 per cent and 5.4 per cent respectfully.