Investment managers seeking flexibility by staying short while ruing the miserable yields on short-term paper could have a new product that solves this conundrum. Royal Bank of Scotland launched a new deposit account that gives corporate investors the liquidity of a call facility but allows them to earn a higher yield if they decide to keep their funds on deposit for a longer period of time.
The Scottish bank debuted the product, dubbed Yield Call Deposit Account, at this month’s EuroFinance conference in Miami. Philip Lindow, head of international liquidity and investment management at RBS, noted that treasurers who turn over their short-term cash on, say, a three-to-five day basis—which isn’t uncommon—have not only limited yield opportunities, but have to go out to several banks for bids, which is a logistical drain.
The RBS product promises to erase both issues. If the depositor can keep the money on account past certain thresholds, the return ticks up to reflect the longer term maturities. This is a boon for depositors, RBS says, but also gives the bank a more stable deposit base, which could also benefit RBS by creating more opportunities for transactions in other areas.
Mr. Lindow noted that the product has been in beta testing in dollars, pound sterling and euros, and is now available for balances of at least one million euros. The dollar- and sterling-based versions will be available soon, and the product so far has a maximum maturity of five years, although that’s not set in stone, he noted.
The YDCA is not the only product emerging from RBS’s skunk works. The bank has at least two other twists on the idea of a liquid account that, if the depositor leaves funds in it, will be able to pay a higher yield.
If the products perform as advertised—and that’s not yet been established—this could help solve treasury’s conundrum, which pits the need for liquidity against the desire for returns.