Focus on the details when it comes to deposits

Finding the right Call, Notice and Term accounts for surplus liquidity requires a detailed conversation with a bank that has experience and expertise, explains Matt Burns , Managing Director, Global Transactions Solutions Sales, Lloyds Bank and Lewis Anderson , Director, Global Transaction Solutions, Lloyds Bank International.

Even after the Bank of England reduced Bank Rate in August, interest rates remain much higher than in the recent past. When rates were as low as 0.1%, few corporates’ and financial institutions’ treasury teams were focused on liquidity: placing money in a current account that offered limited returns was similar to Notice or Term savings accounts that paid the same. Many businesses had to adapt, as profitability was eroded due to the lack of interest.

Now, with higher interest rates, businesses are enjoying improved interest returns, benefiting both their bottom line and their clients, in sectors such as wealth management, who receive better rewards for depositing funds. The more reward they pass on, the more money their clients want to deposit, leading to increased profits.

This shift in the macro environment has therefore made clients more interested in holding cash, which can offer returns comparable to other investment vehicles. Moreover, there is a significant difference in the returns available from easy access (also known as Call), Notice and Term products, encouraging clients to think about long-term solutions and to open specific accounts and products to maximise returns.

Although the consensus is that future UK rate moves will likely be downward, rates are expected to remain higher than pre-pandemic, establishing a new norm where clients seek stable deposit returns. Indeed, as rates decrease, optimising liquidity will be crucial to bolster companies’ financial performance.

Choosing the right product

Treasury policies are the main determinant of investment strategy for deposits. They might restrict how much money can be deposited with a particular bank to manage risk, for instance. Similarly, policies often limit the amount that can be kept in one-year Term deposits to ensure liquidity is available for operational reasons.

To plan for these needs, treasury segments cash into liquidity buckets based on forecasts, each with a different time horizon and risk tolerance. A prudent policy keeps some cash in Call products for immediate needs, while also using Notice products with varying notice periods and Term products across different time frames to meet operational requirements, such as funding investments or paying down debt as it comes due.

Of course, constantly changing product interest rates mean that treasurers must align their liquidity objectives with available accounts. Currently, Term deposits are less attractive as rates are expected to be lower in 12 months, meaning one-year deposits will yield lower returns. Notice products, however, closely track base rates with a margin, offering good returns from the start and adjusting as rates drop, making them a safer choice than longer-term deposits.

Leveraging bank expertise

As most banks offer a similar range of products, knowledge, expertise, and engagement are the key differentiators between providers.

Some banks, such as Lloyds Bank, have scale and long experience of client behaviour across different interest rate cycles that enables them to offer valuable insights to clients. Lloyds Bank also has strong industry connections, with a role as Deputy Chair of Directors on the Swift board, for example, and long-standing relationships with regulators. Indeed, Lloyds Bank has been a key enabler in driving regulatory change regarding deposits to the benefit of the entire industry.

In 2014, Lloyds Bank worked with the Financial Conduct Authority (FCA) on the Client Assets Sourcebook (CASS) client money rules, allowing banks to accept deposits of client money for 30 days; Lloyds Bank was also instrumental in facilitating deposits up to 95 days in 2018, working with the then CEO of the FCA Andrew Bailey. While Jersey, Guernsey and Isle of Man operate under a different regulatory regime to the UK, the benefits of a wider deposit range that resulted from Lloyds Bank’s regulatory engagement are also enjoyed by offshore clients.

When it comes to engagement, some banks just provide interest rates via emails or a portal. Lloyds Bank, however, establishes a dialogue with clients, taking time to understand their treasury policies on deposits, highlighting suitable products, and offering bespoke rates and services.

To this end, Lloyds Bank has recently committed to building its Crown Dependencies operations. Clients can now use Lloyds Bank Gem®, a self-service cash management and payments platform that provides access to a wide range of Call and Notice products. Clients can view their balances across all accounts and products, enabling better decision making.

Lloyds Bank has strengthened its team for Crown Dependencies clients with key new hires, enhancing relationship management and leveraging onshore expertise in Global Transaction Solutions. "Clients now benefit from a wider pool of resources and deeper liquidity expertise across Lloyds Bank at a crucial time, given rate changes," says Matt Burns, Managing Director, Global Transactions Solutions Sales, who runs an onshore team that is now available to Crown Dependencies clients.

“We’re eager to build our deposit base in the Crown Dependencies and begin a strategic conversation for existing and new clients that gets to the heart of their liquidity objectives. Our goal is to be the first choice for deposits in the Crown Dependencies by delivering competitive rates and unrivalled expertise and support,” says Lewis Anderson, who leads global transaction banking solutions for Crown Dependency clients.

With Burns' and Anderson's broader teams, and the Crown Dependencies relationship management team, clients now benefit from the skills and support of over 100 people.

Clients are already noticing the benefits of Lloyds Bank’s additional investment in its Crown Dependencies operations. “We have enjoyed some enlightening conversations with Lloyds Bank recently about our Crown Dependency liquidity needs,” says Chris Hancock, Chief Operating Officer, Multrees Investor Services, which works with the wealth management industry. “We are long-standing clients of the bank onshore and are pleased to see that their deep expertise, new platform and wider product range are now available offshore as well.”

Lloyds Bank Corporate Markets plc is authorised and regulated in the UK as the non-ring-fenced bank of the Lloyds Banking Group. The Jersey, Guernsey and Isle of Man Branches of Lloyds Bank Corporate Markets plc are each separately licensed as regulated deposit-takers in their respective jurisdictions.

Lloyds Bank Corporate Markets plc is independent from Lloyds Bank plc, which is authorised and regulated in the UK, as the ring-fenced bank of the Lloyds Banking Group. For more information on ring-fencing visit: international.lloydsbank.com/ringfencing

Lloyds Bank International is the registered business name of Lloyds Bank Corporate Markets plc in Jersey and the Isle of Man