Watch Out for Promos

Depositors can sometimes benefit when banks offer special interest rates for big amounts of deposits, usually starting at the threshold of 100,000 British pounds and above. An offer like this that gives high rates for big amounts should be taken with a grain of salt as there could be hidden risks involved. One should ask why a bank is in need of deposits in the first place other than for normal growth deposit targets. In many instances, there are reasons for this situation where a bank needs deposits quickly. That is usually to plug a hole in its balance sheet caused by some loans that have turned sour and they need to replenish their capital accounts quickly. In most occasions, however, banks just need new deposits to fund their new lending activities. As we know, banks serve as financial intermediaries. They serve as the link between lenders (depositors) and borrowers (loan applicants) and earn a fee through the interest rate spread.

Start-up banks are usually very aggressive in their marketing efforts to get new accounts and they do this by making generous offers on deposit rates. Some even go beyond by letting clients choose their type of giveaways such as a ball pen or umbrella or a porcelain cup engraved with the bank's logo as come-ons. A new deposit promo comes around only once in a while so it is a good idea to lock unto this high deposit rates before the promo comes to an end once the deposit targets are reached.