Closing a no withdrawal savings account.

eskbanker

savings_my_hobby wrote: »

The Girls Father is splashing out on really expensive dress;)

Is the girl Chelsea Clinton?

TheBanker

ColdIron wrote: »

Not necessarily, many stipulate simply no withdrawals excepting death. Some (Aldermore spring to mind) will say they will review on a case by case basis and may relent in cases of hardship. Hardship in this context could be the consequences of a debilitating injury, need for full time medical assistance etc. See post #3

A bank I used to work for said "no withdrawals" in the terms and conditions. Apart from death, the only other guarantee of a break was bankruptcy.

If there was an exceptional hardship case, we would consider it but exceptional was, as you say, a very serious situation. For example being diagnosed with a critical illness (supported by medical evidence). It may sound harsh but our funding model had your 2 year deposit matched to someone else's 2 year fixed rate mortgage (not directly but the totals had to match). Effectively if we returned your £250k, we had to borrow £250k from somewhere else for the remainder of the term to make the books balance. This became especially difficult if you were part way through, as we wouldn't have, say, a 17 month deposit to match against.

I will point out that we did not consider poor planning (e.g. putting money which was needed for a house deposit into a 3 year term) as exceptional circumstances.

Where we did return funds, this was capital only (i.e. no interest at all) and we reserved the right to deduct our costs associated with dealing with the situation from the capital. In practice given we only broke terms for very serious circumstances, we used to waive our costs as a goodwill gesture.

But customers were warned about 15 times during the application process that they couldn't get their money back and there was a 14 day "cooling off" period at the beginning of the term.

Unfortunately the bank is entitled to do this as long as the product terms and conditions support it. In the same way that the bank wouldn't be able to reduce the interest rate after 6 months if it was advertised as fixed for 2 years, you have to respect the terms of the contract which you agreed.

G_M

TheBanker wrote: »

....... our funding model had your 2 year deposit matched to someone else's 2 year fixed rate mortgage (not directly but the totals had to match). Effectively if we returned your £250k, we had to borrow £250k from somewhere else for the remainder of the term to make the books balance.

That's going back a year or three!

Banks no longer fund loans and mortgages from savers. They either use the Bank of England's cheap money, or just 'invent' the money they lend out.

PeacefulWaters

G_M wrote: »

That's going back a year or three!

Banks no longer fund loans and mortgages from savers. They either use the Bank of England's cheap money, or just 'invent' the money they lend out.

Banks have pretty much returned to the model of assets (loans) being funded by savings and current accounts.

The cheap Bank of England money you refer to is but a minuscule drop in the ocean.

And "inventing" money is simply the talk of fantasists. Unless you mean interest.

G_M

Hmmm.... I was quoting an analysis of modern banking I heard recently on Radio 4. If I can remember the programme I'll try and find a link......

teddysmum

PeacefulWaters wrote: »

Banks have pretty much returned to the model of assets (loans) being funded by savings and current accounts.

The cheap Bank of England money you refer to is but a minuscule drop in the ocean.

And "inventing" money is simply the talk of fantasists. Unless you mean interest.

Well the banks don't seem to want our money or rather they don't want to pay us for its use.

PeacefulWaters

teddysmum wrote: »

Well the banks don't seem to want our money or rather they don't want to pay us for its use.

And your point is?

If they are having to lend it out at 3.5% on an unsecured basis they're not going to be paying savers anything of value.

But that doesn't mean that they don't hold savers' balances.

grey_gym_sock

"inventing" money is not really an accurate statement of what banks do. though it might be an over-shortened version of an accurate account. i didn't hear the radio programme in question.

a more accurate version might be: loans create deposits. when a bank makes a loan, that creates a deposit (for an equal amount to the loan) - because that's how they pay the loan: they credit it to a customer's account.

this implies that banks don't have to go looking for thrifty savers, who want to deposit money in a bank, before the bank has the money which it can then lend out to potential borrowers. causality works the other way round. making the loans creates the deposits.

but so far as fixed rates go: i would imagine that banks do still want to have fixed-rate deposits (or some other form of fixed-rate funding) to match fixed-rate mortgages. because otherwise they risk losing money if interest rates rise. if a fixed-rate mortgage is matched by variable-rate deposits, then after interest rate rises, they would continue to collect the same low fixed rate of interest on the mortgage, but have to pay the higher rates on variable-rate deposits which the market would then demand (or risk deposits moving away to other banks, making them insolvent).

Ballard

Banks have to work within a strict liquidity framework. This means that they are unable to simply borrow short term (e.g. current accounts) and lend long term (e.g. 25 year mortgage). The reason being that if everyone with a current account opted to close their account the bank wouldn't have the funds to repay everyone.

As I understand it, the regulator assesses each bank and allows them to use a percentage of call deposits (such as current accounts) to fund long term deals but the vast majority would have to be kept effectively as cash.

Banks having 'no withdrawal' deposits makes sense as they can use these funds to lend longer term. They pay better interest rates but the downside is that you're locked in. If the bank breaks it without very good reason then that messes up their liquidity model. If they repeatedly break it then the regulator would ask questions and potentially stop them using the model completely.

The idea of banks inventing money is nonsense. Banks lend money which is put in a current account before being paid away. The liquidity ratios are still valid so if I borrow £5,000 for two years and buy a car with it the bank have £5,000 to cover for 24 months. In their ideal world the bank would lend me money for two years at 5% and I'd then place it on a fixed term deposit with them at 2% but I don't see that happening very often.

grey_gym_sock

Ballard wrote: »

Banks have to work within a strict liquidity framework. This means that they are unable to simply borrow short term (e.g. current accounts) and lend long term (e.g. 25 year mortgage). The reason being that if everyone with a current account opted to close their account the bank wouldn't have the funds to repay everyone.

As I understand it, the regulator assesses each bank and allows them to use a percentage of call deposits (such as current accounts) to fund long term deals but the vast majority would have to be kept effectively as cash.

so basically banks do fund a significant part of their long-term lending with short-term borrowing. though they are required to hold a certain amount of very liquid assets. so a small outflow of deposits wouldn't make them insolvent, but a larger outflow could well do so. on the face of it, this does look inherently unstable. however,

1) if a bank has liquidity problems (e.g. after an outflow of deposits), but the bank of england judges that it is sound in the longer term, the BoE can lend it cash to tide it over its temporary problems (and the BoE really can create unlimited amounts of cash if needs be).

2) i'm not sure what the alternative is. how much capital is there that people would be happy to tie up for 25 years, at a low rate of interest (whether that's fixed or variable), in order to fund mortgages?

The idea of banks inventing money is nonsense. Banks lend money which is put in a current account before being paid away. The liquidity ratios are still valid so if I borrow £5,000 for two years and buy a car with it the bank have £5,000 to cover for 24 months. In their ideal world the bank would lend me money for two years at 5% and I'd then place it on a fixed term deposit with them at 2% but I don't see that happening very often.

note that, when the money from a bank loan is paid away (e.g. to buy a car), it ends up in somebody else's current account (whether that's at the same or a different bank), so the total amount of money in current accounts doesn't go back down again at that point.

one definition of money is: all the notes and coins in circulation, plus the total of all credit balances in current accounts.

by that definition, when a bank makes a loan, the total amount of money goes up.

and when somebody repays a loan, the total amount of money goes down.

most other transactions (e.g. buying a car) have no effect on the total amount of money, because they just transfer money between different current accounts.

though of course, if you hypothesize that the person selling the car using the proceeds to pay off a loan, then the total amount of money would go back down again as a result.

so though "inventing" doesn't explain it properly, banks' actions do affect the amount of money in circulation.