What is deposit risk?
Deposit risk is one specific form of liquidity risk. It occurs when a larger-than-expected cash outflow is removed from a financial institution because of changes in depositors’ behaviour. It is comprised of early withdrawal or redemption risk, roll over risk and run risk.
Where have you heard about deposit risk?
There are more than ten different types of financial risk and deposit risk is one that affects financial institutions and holders of time deposit accounts. A time deposit is an interest bearing account where money is held and not removed until the fixed term date.
What you need to know about deposit risk.
There are three factors to bear in mind when dealing with deposit risk. The first is early withdrawal (or redemption risk), which is when the depositor chooses to withdraw their money before the recognised maturity date. The second is rollover risk, which occurs when a depositor doesn't agree to roll over their matured time deposit due to an array of factors. Thirdly, run risk is a risk involved with non maturity deposits where the depositor can remove money from their account at any time, combining the risks involved in roll over and redemption risk.
Find out more about deposit risk.
To find out more about deposit risk, take a look at our page for withdrawal risk.