Fixed Term Deposit Account, what's the alternative ?

Usjes

Hi,

With the interest rates available on Fixed Term deposits consistently decreasing I'm wondering if anyone can recommend a better alternative. I'm looking for something where the principal and a fixed rate of return are guaranteed.

You may think it is unreasonable to expect a better return than the banks but the way I look at it is that the banks are effectively bankrupt and are offering returns way below what they are charging mortgage borrowers in order to try to plug the black-holes in their balance sheets. For car financing for instance we saw things like BMW financing spring up quickly enough. This was to plug the gap where banks would not lend to credit-worthy borrowers simply because the banks had no money. So what is the equivalent in the fixed-term deposit market ? There must be money to be made and market share to be gained by some outfit that is not encumbered with legacy problems with their balance sheet as a result of the financial crisis ?

Any suggestions ?

Thanks,

Usjes.

dotsman

I don't think you fully appreciate the banking situation at the moment. You mention the bank's balance sheets, which would suggest that they desperately need to increase their deposit intake and, thus, would be offering high deposit rates (to attract more customers/funds) if that was the case.

It certainly was the case a few years ago when the credit crunch started (at one stage, I was getting more interest on my deposit account than I was paying on my mortgage!). However, now deposits are fairly steady and there is no need for banks to pay high (loss-making) interest rates.

Courtesy of the economic uncertainty of the past few years, it is widely acknowledged that consumer spending has decreased dramatically. However, only a fraction of that is because people can no longer afford it. In a large number of instances, it is because people have been "sensible" with their money and paid off past debts and have increased their savings. This is an economic problem, and one that the ECB is desperately trying to resolve over these past few years. By decreasing the ECB rates to practically nothing, they are hoping people will go out and spend more and kick-start the economy.

Which brings us back to bank deposit rates. Although not directly linked to ECB rates, they are still reflective of the current economic situation and ECB policy (ie - spend your money now!)

Scortho

Usjes wrote: »

Hi,

With the interest rates available on Fixed Term deposits consistently decreasing I'm wondering if anyone can recommend a better alternative. I'm looking for something where the principal and a fixed rate of return are guaranteed.

You may think it is unreasonable to expect a better return than the banks but the way I look at it is that the banks are effectively bankrupt and are offering returns way below what they are charging mortgage borrowers in order to try to plug the black-holes in their balance sheets. For car financing for instance we saw things like BMW financing spring up quickly enough. This was to plug the gap where banks would not lend to credit-worthy borrowers simply because the banks had no money. So what is the equivalent in the fixed-term deposit market ? There must be money to be made and market share to be gained by some outfit that is not encumbered with legacy problems with their balance sheet as a result of the financial crisis ?

Any suggestions ?

Thanks,

Usjes.

An post?
State savings/solidarity bond?

How long are you looking to leave it on deposit for.

368100

Hi Usjes,

A bank is a business like any other and is looking to make a profit, the way they make that profit it to lend money at higher rates that they give on deposit. With the exception of the past few years when they needed to increase the amount they hold on deposit, that's the way banks have always worked.

belcampprisoner

banks go by European rate interest rates are being kept too low by goverments,thats why gold is so high


http://www.boston.com/business/personalfinance/managingyourmoney/archives/2011/08/winners_and_los.html