Why CASA deposits are no longer a cheap source of funding for Singapore banks

They've been paying up for such deposits to attract new customers.

In most banking systems, CASA are considered sources of low cost funds, especially since banks do not pay interest for funds parked in current accounts. But in Singapore, this has changed.

In its zeal to gather current deposits and use such accounts as a means of attracting new customers, Maybank Kim Eng says Singapore banks have been paying up for current deposits. Such deposits are no longer regarded as a cheap source of funding for Singapore banks. Fixed deposit (FD) rates are lower than the competitive CASA rates.

"The flip side is current account customers tend to be stickier than FD customers. In offering promotional rates for current deposits, Singapore banks encourage customers to bank their salaries into these accounts and then facilitate electronic payments for mortgages, utilities, transportation, credit cards or other regular transfers. All these help to create sticky relationships," the brokerage firm said.

Here's more from Maybank Kim Eng:

One of OCBC’s popular savings products in Singapore, the OCBC 360 account, was first launched in July 2013 to reward customers who undertake more online banking with the bank. Its product enhancement in 2014 allowed customers to earn interest rates of up to 3.05% (in comparison to FD rates of 0.25% for local banks at that time). It was the best interest rate in town and also drew young professionals to bank with OCBC.

The effort by the bank to cross-sell other products to current account customers; customers who buy/participate in additional products stand to gain higher rates. For instance, customers can gain higher interest rates when they insure or invest with OCBC. Other competitive offerings, such as the DBS Multiplier account and UOB One Account work in similar innovative ways to lure and improve cross-selling.