Why Some Deposits Are More Stable Than Others

Stability is behaviour, not a label

It is tempting to rank products mechanically: current deposits unstable, term deposits stable. Real behaviour is more complicated.

A household transaction account may be contractually on demand but operationally sticky because salary, recurring payments and daily habits are attached to it. A term deposit may be contractually fixed until Friday and vanish completely on Monday after maturity.

The bank therefore studies both:

• contractual stability: what the legal terms allow the customer to do and when;
• behavioural stability: what similar customers actually tend to do under normal and stressed conditions.

Good risk management uses behavioural evidence without forgetting that stress can invalidate yesterday’s pattern.

The first determinant: why is the money there?

Purpose often predicts behaviour better than account name.

Customer purpose	Typical behavioural clue	Potential stress change
Salary and daily expenses	Balance replenishes and drains repeatedly	Customer may still keep the relationship even while reducing surplus cash
Emergency reserve	Balance stays until a household shock	Economic stress can trigger real withdrawals even without bank-specific fear
Business operating account	Cash is tied to receivables, suppliers and payroll	Large operational flows can leave quickly if treasury policy changes
Investment parking cash	Balance waits for another opportunity	Very rate-sensitive and mobile
House or tax payment reserve	Stable until a known event	Predictable large outflow at the destination date
Term saving	Contractually fixed until maturity	Can become fully mobile at rollover

A balance therefore contains a hidden future use. Stability analysis tries to infer that use without pretending it can see every individual decision.

The second determinant: concentration

Consider two banks with S$10 billion of deposits.

• Bank A: deposits are spread across one million households and small businesses.
• Bank B: half of the total belongs to twenty institutional or corporate customers.

The total number is identical. The decision structure is not. Twenty treasury teams can move billions through a small number of instructions. A million households require a broader behavioural shift before the same percentage leaves.

Diversification therefore applies to funding as well as lending. A bank does not only ask, “How much deposit funding do we have?” It asks, “How many independent decisions could make it disappear?”

That question becomes even more important when apparently separate depositors share the same adviser, industry, social network or market trigger. Numerical diversification can hide behavioural correlation.

The third determinant: rate sensitivity

Some customers hold deposits because of convenience. Others manage cash as a yield-seeking asset. The second group is more likely to move when rates change.

A depositor who compares alternatives daily may transfer for a small improvement. A household with salary, mortgage, cards and bill payments tied to one bank may tolerate a larger rate gap because moving the whole relationship creates friction.

This does not make one customer “good” and the other “bad.” They simply use the deposit for different jobs. The bank has to price and manage the behaviour honestly.

Read the pricing side in Why Banks Pay Interest on Deposits.

The fourth determinant: relationship friction

A deposit can become operationally embedded. Salary arrives there. Accounting software connects to it. Suppliers know the account. Direct debits run through it. Cards, payroll, mortgages and treasury systems may be attached.

These connections create switching friction. The customer can still leave, but leaving has a cost in time, administration and operational risk. That can make balances more persistent under normal conditions.

However, relationship depth should never be mistaken for captivity. Digital banking can reduce switching friction sharply. A customer may keep operational services at one institution while sweeping surplus balances elsewhere. Technology can separate the payment relationship from the funding relationship.

The fifth determinant: deposit insurance and perceived protection

Where a formal deposit-insurance scheme protects eligible balances up to a defined limit, insured customers may have less reason to run purely because they fear bank failure. The protection changes the depositor’s expected loss.

But coverage is never a reason to assume every deposit is stable. Some balances can exceed the insured limit. Some currencies or products may be outside the scheme. Large corporate treasurers may manage liquidity according to internal counterparty limits regardless of public insurance. Customers may still move funds because they need them, prefer another rate or want operational continuity.

For Singapore, deposit-insurance questions should be checked against the current SDIC scope of coverage and the institution’s own insured-deposit disclosures.

The sixth determinant: information and confidence

Deposits are claims. A depositor’s willingness to hold the claim depends partly on confidence that it will remain usable.

Confidence can weaken because of real information—large losses, governance problems, liquidity pressure—or because customers cannot distinguish their bank from another troubled institution. During uncertainty, the inability to verify can become almost as important as the underlying facts.

This creates an information problem. Each depositor may think:

“I may believe the bank is probably fine. But if everyone else leaves first, will I regret staying?”

Once that strategic uncertainty appears, stable funding can become unstable even without new deterioration in the underlying loan book.

The seventh determinant: digital speed

Historically, withdrawing or transferring large balances could require visiting branches, writing cheques, making calls or navigating slower systems. Digital banking compresses that friction. Information and transfer instructions can move continuously.

This improves ordinary banking enormously. It can also make behavioural assumptions age faster. A deposit base that looked stable when moving money required hours of effort may behave differently when the same action takes seconds.

Digitalisation therefore changes run velocity even if it does not change the legal nature of the deposit. Banks must consider how quickly customer decisions can become settlement outflows.

The eighth determinant: customer sophistication and treasury discipline

A household may manage cash occasionally. A large corporation can have a professional treasury team monitoring counterparty limits, yields, liquidity and concentration daily. Institutional depositors can therefore react quickly to market signals or internal policy limits.

This does not mean sophisticated depositors always run first. It means their behaviour can be rule-driven rather than habit-driven. A credit downgrade, spread movement or concentration threshold may trigger action even if the treasurer personally remains calm.

Funding stability must therefore include organisational behaviour, not only individual psychology.

The ninth determinant: operational dependency

A business may want to move money but be unable to switch core banking relationships immediately because payroll files, merchant settlement, trade facilities and authorisation structures are deeply embedded. That makes some operating deposits sticky.

Yet the reverse can happen during an operational outage. If a bank’s payment systems fail repeatedly, a customer may move balances not because of solvency fear but because it needs reliable access. Operational risk can therefore become funding risk.

This is a key banking connection: service reliability supports deposit stability.

Stable under which scenario?

No deposit is simply “stable.” It is stable relative to a scenario.

Scenario	Deposit behaviour can change because…
Normal economy	Transactions, salary, business cash flow and ordinary rate competition dominate.
Rapid rate rise	Customers become more yield-sensitive and move excess balances.
Household recession	Emergency savings are drawn down for living expenses.
Bank-specific rumour	Confidence and strategic behaviour dominate.
System-wide stress	Customers may prefer perceived safe institutions or physical/central-bank forms of money.
Operational outage	Customers move for access reliability rather than credit concern.
Corporate acquisition or treasury change	Large balances can move for policy reasons unrelated to the bank’s health.

This is why stress testing matters. Historical averages describe yesterday’s mixture of scenarios. Risk management asks what happens when the mixture changes.

How banks model deposit stability

Banks use internal data and regulatory frameworks to estimate how deposits behave across time. They may examine balance persistence, customer segment, account type, concentration, rate sensitivity, maturity, transaction patterns and stress outflows.

The purpose is not to predict every customer. It is to estimate aggregate behaviour well enough to manage liquidity and interest-rate risk.

But every model carries a warning label:

customer behaviour observed under one technology, rate regime and confidence environment may not survive a different one.

This is especially important when digital transfer speed, social information networks and customer concentration change faster than the historical data set.

Why a deposit run can be rational for one customer and destructive for the system

If a depositor fears loss, leaving early can look prudent. If many depositors act simultaneously, the bank must convert assets into settlement liquidity rapidly. That can force asset sales, increase funding costs and make the feared outcome more likely.

This is the classic coordination problem inside a run: individually defensive behaviour can collectively weaken the institution.

Deposit insurance, credible supervision, central-bank liquidity arrangements, clear communication and robust bank liquidity are partly designed to break that feedback before it becomes self-fulfilling.

The full failure route belongs to How Banking Does Not Work. This article owns only the behavioural funding question.

Why “sticky deposits” can become a dangerous phrase

Bankers sometimes describe deposits as sticky when they remain despite rate changes or competing offers. The phrase is useful shorthand. It becomes dangerous when it hardens into belief.

A deposit is sticky until the reason for staying changes. The reason may be convenience, habit, insurance, relationship depth, switching cost or lack of alternatives. If technology, rates or confidence change, the stickiness can disappear.

Good risk management therefore asks not only, “How sticky has this deposit been?” but “What mechanism made it sticky, and can that mechanism survive stress?”

Why term deposits can create maturity cliffs

A term deposit may look highly stable because it cannot freely leave before maturity. But if a bank attracts a huge volume of six-month deposits during one campaign, many liabilities may mature during the same week six months later.

That creates a maturity cliff. The bank must renew the customers, replace the funding or shrink assets. If market rates are higher by then, the replacement can be expensive. Contractual stability before maturity can therefore conceal concentrated refinancing risk at maturity.

Funding quality is about the whole distribution of maturities, not only whether individual deposits are fixed.

Why a bank wants diversity of deposit behaviour

A bank does not want every customer to make the same funding decision for the same reason at the same moment. It benefits when depositors have different needs, maturities and triggers.

• Some customers need transaction accounts.
• Some hold emergency savings.
• Some commit term funds.
• Some businesses hold operating cash.
• Some customers are highly rate-sensitive.
• Some relationships are long-lived.

That heterogeneity can reduce the chance that every liability reacts identically to one shock. The principle resembles diversification on the asset side: different behaviours prevent one story from becoming the whole balance sheet.

Four misconceptions to remove

Misconception	Better model
“On-demand deposits are always unstable.”	Some on-demand deposits are behaviourally persistent because of purpose and relationship ties.
“Term deposits are always the safest funding.”	They create clear maturity dates and possible refinancing cliffs.
“Many depositors always means diversification.”	Customers can still share the same trigger, adviser or information source.
“Past stability proves future stability.”	Technology, rates, confidence and customer composition can change the behaviour regime.

A funding stress thought experiment

Imagine two S$100 million deposit pools:

• Pool A: 50,000 households with salary accounts, most within the applicable insured range, moderate rate sensitivity and long operating relationships.
• Pool B: five professional treasury customers holding short-term surplus cash above ordinary insurance limits and comparing rates continuously.

The bank should not assume the pools have the same stress outflow simply because both total S$100 million. Pool B can move through five decisions. Pool A can still run under severe fear, but its behavioural mechanism is different.

Now rotate the scenario. Suppose the bank’s payment app fails repeatedly for a week. Pool A may suddenly become less stable because customers need reliable access. Pool B might stay if its treasury interface remains operational. Stability is always conditional on the shock being tested.

What you should now be able to explain

1. Why is contractual maturity different from behavioural maturity?
2. Why can concentration make a large deposit base fragile?
3. How do interest rates change deposit stability?
4. Why can digital banking increase run velocity?
5. How can operational outages become funding problems?
6. Why should “sticky” be treated as a hypothesis rather than a permanent property?
7. Why can deposit insurance influence behaviour without making every deposit stable?

If those answers connect, the bank’s liability side becomes much more realistic. Deposits are not a silent wall of money. They are millions of claims held by people and organisations with reasons, alternatives, constraints and changing information.

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