One problem with cutting official interest rates is that it can lead to increased credit spreads. Investors may form the view that economic conditions are weakening and therefore risk margins need to increase.This seems to be what has happened with the wholesale funding costs incurred by the major banks since May last year. It may also explain why the banks felt compelled to make the otherwise surprising move of raising some term deposit rates after the Reserve Bank cut the cash rate last week.The move received only faint praise and was barely noticed amid the wide spread condemnation of an average 12 basis points cut to mortgage rates.In May 2015, the banks were paying a margin of 80 bps over bank bill and swap rates for five-year funds. But since then, the margin increased sharply to plateau around 120 bps in May this year.And in international markets in recent months the banks have paid as much as 130 bps over on a fully hedged basis.The increase in wholesale funding margins has effectively offset the decline in underlying base rates, which have fallen roughly in line with cuts to the cash rate over the same period. Wholesale investors are demanding a similar absolute level of compensation for exposure to the major banks as they were more than 12 months ago. It will be interesting to see whether this latest cut to the cash rate will coincide with a further widening in credit margins. Perhaps this is what the banks are expecting and thus provides a context for the increase in some term deposit rates.The move to increase term deposit rates is a significant one that underlines the importance of deposits to the funding mix of the banks. While the banks have boosted deposit levels since the GFC, the steady fall in interest rates over the same period has made those deposits ever less attractive to savers, with funds increasingly being diverted into higher yielding alternative investments.Such has been the waning attraction that the banks have realised that they will have to pay more to stop the rot. Indeed, some of the major banks are paying retail investors as much for debt funds as they are paying wholesale investors, at least for the moment.The 90-day bank bill rate is now around 1.8 per cent and the five-year swap rate is at 1.9 per cent. When a 120 bps margin for five-year funds is added, the total cost moves to three per cent to 3.1 per cent.A quick check of five-year term deposit rates on offer from the major banks shows that some are offering to pay as much as three per cent to 3.1 per cent.If term deposits start to look more attractive to retail savers, many will come back. But in the meantime retail savers, especially those living off retirement savings, may have to follow the advice given by financial advisers in the Australian Financial Review on Thursday - stop spending.