Why do banks’ fixed deposit rates penalise loyalty?
It is difficult to understand why banks are allowed to offer depositors bringing in fresh funds a higher promotional rate, while automatically renewing the fixed deposits of existing customers at a lower rate.
Existing depositors would enjoy the higher rate only if they close their account on or after the due date and then open a new account using the same funds.
This inconveniences depositors, especially the elderly, who would have to go to the bank and also spend time queueing up to be served. Bank staff have to waste time to close the old account only to open a new one. Is this productivity?
All banks seem to have the same practice, giving depositors no chance to switch banks to avoid this senseless procedure. These banks stand to gain at the expense of depositors by giving a lower interest rate to automatically renewed accounts.
Instead of penalising loyalty, banks should encourage existing depositors to keep the money with them for as long as possible by renewing accounts at the promotional rate at that point or even at a rate higher than that.
It is anticipated that interest rates will climb in the near future.
If all the banks increase the promotional rate while keeping the normal rate at today’s value, depositors would lose out if they forget or have no time to take that illogical but necessary action of closing one account and opening another.
Action should be taken to ensure that all depositors, new or existing, of the same bank enjoy the same interest rate for fixed deposits. This was the trend for decades until a few years ago.
