Why Banks offering attractive FD promotions now? (July 2014)

Once again, we came back to this topic again. The Fixed Deposit promotion offered by various banks lately. Since FD seems to be a form of liability to banks (because banks need to pay depositors interest rate no matter rainy or shiny days), why they still launching FD promotions? What's the rationale behind?

Exposing the mystery ...

1. Implementation of Basel series:
   The main objective of these series was to strengthen the existing capital and liquidity standard of banks as set and governed by Bank Negara Malaysia. With these series, banks would need to have more capital and liquidity to continue their main business in disbursing loans. So, they need our money being locked for a longer period via FD.
   
   
2. In anticipation of higher interest rate:
   Yes. This is another main reason why banks offering attractive FD rate to tie up your money. Because they foresee that BNM will raise the OPR rate, hence FD rate in the future will rise in tandem. What's wrong if I offer you effective 9 months FD rate of 3.60% when I foresee that same tenure rate may went up to 3.50% eventually ?

At least, banks already lock in your money now and loan it out according to current BLR which will increase in tandem with OPR also. Do you know that BLR increasing with 25 basis points in mid-July, and average FD rate increasing with a lesser extend? So, which side is better off? Depositors or bankers? Another OPR hike in November 2014 ?

Some example of FD promotions by various banks:

Super FD with 8.88% ???

Recently, Public Bank wrest its muscle to attracts depositors to place their money with them. This has becomes an annual promotional event to get as much deposits after Chinese New Year. The reason was simple: CNY Ang Pow money... What is so exciting this round?

The campaign is open to all new and existing Public Bank individual customers from 28 Jan till 30 June 2014. All you need to do by placing a minimum RM30,000 deposit. Then, it will be separated into 2 portions, 80% in Special Fixed Deposit (FD) and 20% in Saving Account (SA). 

Yes. Depositors can get up to 8.88% p.a. interest on a step-up basis on the 12th month. Can you get it? It's 8.88% p.a. on the 12th month ONLY, not the whole tenure.

So, what's the EFFECTIVE rate that I can get?

Please refer to the below picture...

Not bad what... Wait... This is only on the 80% FD portion. If you add in the 20% SA portion to the whole principal that you have placed, it's lower than 4.33% p.a. actually. Anyway, it's still better than most FD rate offered by other banks. Cheers to Public Bank !!!

How about the FD rate after 12 months?

It will be auto-renewed according to the normal 1-month FD rate by that time (3.08% p.a. currently). So, if you don't like the 1-month FD rate offered, remember to uplift your money after 12 months ya ;)

What if I withdraw within 12 months?

You can do so. But, the interest paid (which is more than the prevailing FD interest rate) will be claw back. Please refer to below example.