for a 1-year investment in which customers are allowed to redeem anytime after 30 days, who do you think would behave more rationally (ie they would only redeem when there is a financial incentive to do so): Personal customers or Commercial customers? thanks.
I would have thought Commercial, but from my experience it seems retail members are more on the ball. Our commercial members use cashable term products for liquidity purposes and when rates do creep up and they would be able to renew into a higher rate, for the most part, they don’t. In fact, the majority of our institutional members don’t even use the cashable term options. They still go the 30 - 90 day locked in route, even though they could get the higher rate on the 30 day cashable term. Sometimes I sit there dumbfounded by it. The could pick up an extra 30 bps on $10,000,000, have downside protection for a year if rates fall and they don’t need the funds, and still have the capability to pick up the increases should rates go up. I don’t get it.
thx bigbabbu! my analysis also shows the same, that Personal behave more rationally. I just don’t know how I’ll explain this to others since it doesnt make sense intuitively to me.
as always, look at the incentive if it’s for yourself, you care about an extra couple points. if it’s for your job, you likely only care about getting out by 5pm