International Journal of Commerce and Economics

International Journal of Commerce and Economics

Online ISSN: 2664-7540; Print ISSN: 2664-7532
Received: 07-08-2019; Accepted: 08-09-2019; Published: 15-09-2019
www.commercejournal.in
Volume 1; Issue 4; 2019; Page No. 36-40

Interest Rates and Fixed Deposits

Nwokwu Tochukwu Christian

Post Graduate & Mid-Career Development Unit, University of Colombo, Sri Lanka

Abstract
This research is centered on interest rates and fixed deposits from a developing economy. The proposed study consisted of all 27
branches of ABC Finance PLC. A total of 135 customers were interviewed from 5 customers from each branch. The sample was
identified through non probabilistic sampling technique. The sample was selected to ensure the characteristics of different age
groups, occupations along with gender differences. The data was collected through Questionnaire. All questions are measured on a
5 point likert scale. In order to identify the factors affecting the managerial problem, the questionnaire was conducted based on
7p’s. other areas discussed in this work are: psychographics profile, market development, marketing communications,
distributions, pricing, relationship management, industry and competitive structure based on porters 5 forces – financial sector of
Sri Lanka, factors affecting winning and retaining fixed deposit customers in company ABC, twenty (20) customer retention
strategies, and fifteen (15) customer retention strategies that work.

Keywords: Interest Rates, Pricing, 5 Point Likert Scale, Financial Sector, Interview, Winning and Retaining Fixed Deposit
Customers, Relationship Management, Competitive, Structure, Non-Probabilistic Sampling Technique, Marketing
Communications, and Customer, Retention Strategies

Introduction Approximately 80% of total liabilities. Out of the total deposit

Company – ABC PLC base, fixed deposit accounted for 97%. Deposits, is the
The Industry sector is financial services, which has History of strongest indication of public confidence. Fixed Deposit
eight (8) years, with number of branches of twenty seven (27). product is offered to the customers with the strength of the
Total liabilities (funding) for the company comprise the trust and respect well earned over the last 10 years.
deposit base, bank overdraft facilities, term loan facilities
obtained from banks, securitized borrowings, debentures and Product – Fixed Deposit
other borrowings. A major portion of the funding has been Maturities available (from 1 month to up to five years):
obtained from public deposits which accounted for Refer below information.

Fig 1

 Important: Rates are subject to change based on the  Rates depends on the Quarterly weighted average yields
Central Bank Direction. of 364 day Treasury bills
 Interest payable at maturity or monthly

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Table 1
Quarterly weighted average yields of
Year Quarter
364 day Treasury bills
2012 Q1 9.23%
Q2 10.82%
Q3 13.79%
Q4 14.65%
2013 Q1 13.82%
Q2 12.45%
Q3 12.21%
Q4 11.75%
2014 Q1 10.68%
Q2 8.01%
From Q2 – no change 8.01%

Ceiling rate is above rate + a margin prescribed by the Central years -5%. One percent additional interest rate can be given to
Bank. E.g. Less than one year -3%, 1 to 3 years- 4%, 3 to 5 the senior citizen over age of 55 years.

Issue: Number of deposit holders is coming down (source: company data)

Fig 2

 Company’s Target market of Fixed Deposits market development.

Marketing Communications are TV / Press and outdoor
Table 2 advertising (Hoardings at strategically selected locations +
Gender Occupation Age Geographic
street name boards + Bill Boards).
Men  Professionals
Distributions: New branches + door step service by
 SMES 25 up ward urban & Sub urban marketing staff / personal selling.
Women Pricing: Competitive pricing strategy - Risk & Return based
 Senior citizen
pricing.
Psychographics profile: Rational decision makers, take Relationship Management: team for retention of clients
calculated risk, forward-thinking. (skilled staff in managing relationships).
Market Development: Geographical expansion is part of

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Fixed deposit maturity

Fig 3

Industry and competitive structure based on Porters 5 Factors affecting winning and retaining fixed deposit
forces – Financial Sector of Sri Lanka customers in company abc are:
Threat of New Entrants - Low Variety of banking services, quality banking services,
Bargaining Power of Customers - High Electronic Banking Services, Providing credits, The interest
Intra Industry Rivalry - High rate paid on deposits, Advertising, How employees behave
Bargaining Power of Suppliers - High with customers, Location of bank branches, Beauty of interior
Threat of Substitutes - Low and exterior space of banks, Numbers of Branches
(Abdolbaset et al, 2014) [1].
 Options available for customers in Sri Lanka as at End
2014 (source: CBSL) Twenty (20) customer retention strategies
Breakthrough marketing strategies proven to grow your sales
Fixed Deposit Market and profits by 400 – 1000% are: Reducing Attrition, Sell and
No of Licensed Banks - 34 then sell again, bring back the “lost sheep”, Frequent
No of Licensed Finance Companies - 48 Communications Calendar, Extraordinary Customer Service,
82 Courtesy system, Product or service integrity, Measure
lifetime value, A complaint is a gift, Blogs, CRM Systems,
The banking system was operating with 6,554 banking outlets Loyalty Programs, Magic Moments, Overcome Buyer’s
as at the end of 2014. During 2014, the LFC and SLC sector Remorse, Personal Touches, Premiums and Gifts,
branch network expanded to 1,132. Rivalry is high due to the Questionnaires and Surveys, Regular Reviews, Social Media,
above explained number of competitors competing with each Welcome Book (Marketing Wizdom 2013) [6].
other for deposits.
Fifteen (15) customer retention strategies that work
Literature Review Customer retention is incredibly important for growing a
Deposits Remain the Cornerstone of Retail Banking (Kane, sustainable business (Gregory, 2013) [3]. The proven points
2005) [4]. Growing customers’ expectations and, as below are important to consider when evaluating your own
consequence, an increase of cost of customer acquisition are customer loyalty strategies because in the customer
the main problems in modern retail banking (Titko and Lace, service echo-chamber there is a lot of "hoo rah" about taking
2010) [11]. The easiest way to grow your customers is not to care of customers, but little discussion on the business side of
lose them (Marketing Wizdom, 2013) [6]. Customer things (Gregory, 2013) [3]: Stand for something, Utilize
satisfaction depends on how products and services meet or positive social proof, Invoke the inner ego, Use the words they
surpass customer expectation (Kotler et al., 2000) [5]. As for love to hear, Reduce pain points and friction, Realize that
banks, A. Damodaran considers customer deposits as a raw budget is negligible, Utilize surprise reciprocity, Make it
material, because they will be further transformed into other personal, Speed is secondary to quality, Customers enjoy
financial assets (Damodaran, 2007) [2]. Thus, bank customers businesses who know them, Choose the right platform, Make
are consumers and suppliers at the same time. And, it is it a communal effort, Get people started, Get ideal customers
doubly important for banks to retain profitable clients and to to be VIPs, Label your customers (Gregory, 2013) [3].
intensify the return from the existing customer base.

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Research Methodology accept. In order to win and retain FD’s, under place, proximity
The proposed study consisted of all 27 branches of ABC of the branch, convenience of services and location, security
Finance PLC.A total of 135 customers were interviewed from of the place (Head Office/Branch) and awareness of FD’s
5 customers from each branch. The sample was identified facilities in the branch were considered.
through non probabilistic sampling technique. The sample was Personal: In terms of personal customer satisfaction
selected to ensure the characteristics of different age groups, considered important. In order to win and retain FD’s, the
occupations along with gender differences. The data was ABC Finance PLC must maintain professional and
collected through Questionnaire. All questions are measured appropriately trained staff. Under personal, attractiveness if
on a 5 point Likert scale. the employer towards customer, constantly availability of the
employee, staff efficiency and professional in serving
Table 3 customers are considered in evaluating win and retain FD’s.
Variable Measurements Physical Evidence: Under physical availability of physical
Maturity facilities that cater customer needs, availability of pleasing
Extra benefits (gift) and healthy environment and physical layout that support user
Product were questioned to evaluate the managerial issue.
Competitors offerings
Trustworthiness Process: This must satisfy the customer needs. Under
Interest Rate preference of the efficiency in system, waiting time, interaction, service
customer provided (delivery/after service and convenient options
Price
Withdrawal charges offered were evaluated to identify issue related to win and
Frequency of Rate variability retain customers, which will further promote the perforance of
Promotion Promotions relating to FD products the company. For more insights on corporate performance, see
Proximity (Home /Workplace) (Nwokwu, Dharmadasa, & Rathnasingha, 2018; Nwokwu,
Place Security Atapattu, & Azeez, 2019; Nwokwu, 2018; Nwokwu,
Parking availability Rathnasingha & Pradeep, 2019) [10, 8, 9, 7].
Physical evidence Physical facilities
facilities Convenience Layout
References
Knowledge of the staff on FD product
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Willingness to help
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Complaint handling
Professionalism Interest in Depositing their Money in Bank, International
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Process Error Free Transactions 2014, 3(12).
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Techniques for Determining the Value of Any Asset.
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problem, the questionnaire was conducted based on 7P’s [online], 2013. Available at:
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product. In identifying whether there is an issue related to the that-work/ [Accessed 25th October, 2015 by 11:45am]
product following areas had been focused under product. 4. Kane M. Strategies and Tactics to Improve Deposit
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offered. 5. Kotler P, Armstrong G, Saunders J, Wong V. Principles
Price: In terms of price, for FD’s interest rate matters. of Marketing. 2nd Russian Ed. Moscow: Williams
However, this is generally controlled by Central Bank of Sri Publishing House, 2000, pp944.
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