Today, I went to Hang Seng bank (arguably the best bank on service in HK) to do a term deposit for my wife.
I'll go straight into it, here's the deal. New money 3month fixed term deposit rate is 1.75%, old (existing) money is 0.9%. This "new" vs "old" money scheme is retarded as customer can game this easily by moving the money to another bank with new money rate, and then switch back to Hang Seng Bank to get a 3m new money rate on maturity, then back to this other bank (say StandChart) on maturity and keep repeating this to enjoy the new money rate on every term deposit renewal.
Online Hang Seng Bank 3m rate is 0.05%, can you believe it!? That’s outright deceit when other banks are offering >2%pa for the same 3m term. Why would bank offer inferior rate online, and/or for existing customer on "old" money? That's because they want you to keep the money in your current/savings account with no interest. And most people cannot be bothered (or no time) to go into a branch and negotiate a better rate term deposit. The bank makes you jump thru hoops to get that better rate. They are making money out of your inertia or ignorance (information asymmetry), or simply put, taking advantage on your weakness.
We end up getting a 3m rate of 1.65% (remember the original quote for existing money was 0.9%) vs the new money 3m rate of 1.75% vs HIBOR of 2.12% (https://www.hangseng.com/en-hk/rates/hibor/). So the bank is still making 2.12-1.65=47bp out of this “negotiated” term deposit. Could I get a better rate elsewhere? I am sure I can, but we need to pick up our daughter from school after her ECA. Time (the most precious resource in life) is better spent on family than the best possible money deal. But we need a plan-B on maturity. Wouldn't it be nice if the bank can always roll our term deposit at the best possible "new" money rate?
When we were about to finish on the paper work, the bank manager asked us whether we want to auto-roll the term deposit on maturity? Are you serious!? Can I trust that you will auto-roll that deposit at the best possible rate after all that? Are you really that thick-skin to ask us to give you another opportunity to screw us?
Imagine you have a partner who will always take advantage of you if/when you don't pay attention. There's no trust, you'll always need to check on him/her to avoid getting screwed. Life is too hard (and too short!) dealing with someone (or businesses) like that! Now imagine another partner you can trust that he/she will always look after you and give you the best possible deal and keep improving on that customer experience. Wouldn't you go back to them like clock work? That begs the next question, on a day-to-day basis, what type of business can you trust and what type of business you can't? Bank operates on the motto of screwing ignorant or lazy customers. New age biz model operates on the motto of giving customers the best deal/experience/transparency without customers even asking (eg Costco / Bookdepository).
The next question is then would banks make a good investment since most people don't have that information advantage or time to shop around, hence banks can make outsized money? My thoughts on this is that there shouldn't be any conflict on customer vs shareholder interest. High quality earnings that warrants higher PE ratio comes from making consistent stream of income when customers keep coming back like clock work (vs inconsistent higher margin income from ignorant customers). When it comes to investing, we should really be focused on companies with that high quality subscription model, and a sustainable long term win-win mindset. Banks might not be a sustainable long term investment given their I-win-you-lose mindset (I haven't seen a bank operates on a win-win mindset yet). When you look after your customers, the rest (including money) will take care of itself.