Credit turmoil brings cash deposit opportunities

Charities are being advised to make the most of high interest rates caused by the current credit crisis by making fixed-term deposits.

The crisis, which was sparked by US borrowers defaulting on mortgage payments, has led to turmoil in the stock market and sharp interest rate rises as banks clamp down on lending.

Ron Green, senior manager, product development and distribution, at the Charities Aid Foundation's Charity Financial Services division, said the rate increases could provide unexpected gains for canny investors.

"Interest rates have completely shot up," he said. "There has been no increase in the base rate, but people who have got cash can now get a return of 6.5 per cent on three-month deposits and 6.75 per cent on six-month deposits, which is pretty much unheard of."

The usual rate for such investments would be 5.75 per cent for three-month deposits and 6 per cent for six-month deposits.

"We have seen people switching out of bonds for cash deposits," Green said.

However, John Hildebrand, head of charities at Investec Asset Management, said: "We would advise against just choosing the highest rates as they will often be high for a reason.

"If charities aren't sure which institutions to place their money with, they could opt for a 'rated' money market fund because such funds are normally well diversified and able to capture higher yields."

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