The credit crunch: the fine print changes at banks

Whilst the more visible mass layoffs at banks like Citigroup, RBS and HBOS grab the headlines, there have also been some subtle changes at banks which are equally designed to shore up their balance sheets.

This time however they’re looking to you, the customer, to do it.

In Australia we usually hold the cash component of our super fund in St George term deposits (St George is soon to merge with Westpac).

The way that St George configures term deposits is, of itself, of some interest as the “12 month term deposit”, if you read the fine print, actually translates into an ‘indefinite deposit’ if you fail to give the bank “Notice” during a 14 day maturity window at the end of the term deposit. Put simply, if you don’t tell the bank that you wish the term deposit to mature at that point they will simply re-invest it for the identical term at whatever the prevailing interest rate is at that time. 

Leaving aside the somewhat misleading nature of a ‘term deposit’ with an indefinite term (which has always been the case at St George) what has changed with the onset of the credit crunch is that it has suddenly got considerably more difficult to give them the Notice in the form in which they require it…

“You are able to continue to send a signed fax to Fixed Terms with a copy of your passport and drivers licence, outlining your request.  A contact number is required in order for our staff to make a verbal confirmation of the request received.  The Bank’s decision to implement these additional safeguards is to protect your funds and personal information.  As your security is of the utmost importance to us, if we are unable to contact you or identify you once contacted, the request will not be actioned.”


So, for ‘personal security’ reasons you can no longer inform them, in advance, that you wish the deposit to mature as specified in the term (we used to be able to do this by email or using phone banking) and in their online banking system whilst you can extend or vary the term you cannot mature it.

They actually now require verbal instruction to mature a term deposit using their phone banking service.  Bad luck if you’re on holiday or you happen to overlook the maturity statement they provide you in the mail … or if, like us, you happen to be travelling in a different timezone expect to spend some time late at night making sure your term deposit matches the term you agreed in the first place.

Naturally, the real motivation here is likely to be that many clients will overlook the fine print, and the bank will end up with some percentage of term deposits renewing when their owners in reality had the intention of moving the money to a better return elsewhere.  As interest rates fall this is a good thing to keep an eye on.

Posted under Risk, Setup

This post was written by mike on November 25, 2008

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