Breaking fixed rate account close (<1 month) to maturity

intalex

Interested to hear thoughts about how flexible financial institutions could be with allowing breaking of fixed rate (non-ISA) accounts close to maturity (e.g. 1 month or less to maturity). The financial institutions have little to lose so close to maturity, but I'm finding a couple of them totally unwilling to budge and appear very rigid on the original maturity date, even with the offer of a fair penalty proportional to the number of days ahead of maturity date. Whilst they are contractually entitled to, it doesn't make sense to be so rigid, at least not on grounds of commercial and/or customer relation factors.

The main thing I can think of is that it may be perceived as no different to allowing to break a fix at any point during the term, which would make it appear as preferential treatment, and possibly exposed to being required to extend the same "favour" to all customers regardless of proximity to maturity date.

Other factors I can think of could be liquidity to release the funds early, logistical challenges (effort required to break a fix early), etc.

Generally I've found that the answer is a no without explanation, so would be interested to hear thoughts from those with some knowledge and experience of this!

jimjames

What do the terms and conditions say? It seems a little pointless with less than a month to go to try to close it and lose a significant portion of the interest but it matters little to them whether it's 3 days, 3 weeks or 3 months if the terms say you can't access until maturity.

intalex

jimjames said:

It seems a little pointless with less than a month to go to try to close it and lose a significant portion of the interest.

It could matter if rates peak and you want to secure a re-investment fix within a limited deposit window.

jimjames said:

but it matters little to them whether it's 3 days, 3 weeks or 3 months if the terms say you can't access until maturity.

Objectively, the impact to them is less the closer you are to maturity, so what would lead them to not be a bit flexible close to maturity? Is it what I pointed out about perceived preferential treatment?

On-the-coast

i disagree with your commennt that "The financial institutions have little to lose so close to maturity"
They have quite a lot to lose... the 60d, 90d, 180d (whatever appropriate in your case) interest penalty that you signed up to (in exchange for a better rate in the first place).

ColdIron

How would you feel if rates had collapsed and they tried to break the contract early and they argued that you had little to lose?

A contract binds both parties

intalex

Key words: <1 month to maturity + penalty offered (assume it's > upside they might gain by holding on to the funds for the remaining days of the term).

I'm looking to understand reasons why a financial institution might still not agree to the early release under these circumstances, I'm positive it wouldn't be out of spite to purposely deny a customer an opportunity to take advantage of (allegedly) peaked rates to secure a fix for the next few years.

kaMelo

It's as simple as the terms didn't allow early access, that's it. 

There are some fixed rate accounts that do allow early access however the trade off is they almost always offer a lower interest rate.

EthicsGradient

Few large organisations use negotiation with the public over terms or prices. Part of their efficiency is a standard offering, not giving individual employees the chance to haggle with customers so they can say "yeah, we gave them a discount, but look how happy they are!".

"I'm looking to understand reasons why a financial institution might still not agree to the early release under these circumstances" - because it costs them money - they have to get money from somewhere else early, and they have to spend time faffing about with you while you negotiate with them. They're a business, not an eBay seller.

DjangoUnchained

i suspect that its a case of not opening the floodgates. If it becomes knowledge that you can close a fixed rate early then people will expect it. Maybe you only want it 3 weeks early but why not 4 weeks or 5 weeks etc. Ive noticed that some terms and conditions do say you cant terminate early unless extreme circumstances. I dont know what extreme circumstances are but i guess short term terminal illness? .

Gary1984

Also just administrative difficulty. If their systems aren't set up to do it then it would be quite burdensome to make an exception for you. Staff costs associated with dealing with the exception and risk of getting ad-hoc calcs wrong is likely to exceed whatever interest amount or penalty we're talking about.