The influence of product age on pricing decisions: An examination of bank deposit interest rate setting

•Firm type heterogeneity in rate setting behaviour.•Maturity or age of product negatively correlated with interest rate offered by firm.•Rate premium offered on the newest product in range compared to established products.•Supportive of the predictions of the Klemperer (1995) consumer switching cost model.•Exploitation by firms of customer inertia. Do banks extract rent from depositors who hold older deposit accounts? This study addresses this question using product level data from the UK instant access (branch based) deposit market. In this context, two research questions related to the conditions necessary for differential pricing for existing and new customers are assessed. Specifically whether more mature deposit accounts have lower interest rates and does the newest deposit account in a firm portfolio pay an interest rate premium? Empirical support is provided for both questions, with interest rate setting for new and existing deposit accounts also found to be influenced by firm type.