Bank offers fixed return on three-month deposit

EuropeArabBank is about to launch its new charities team with a third sector bond that offers a three-month deposit with a fixed return.

The bond, to be unveiled tomorrow at a charities seminar run by the Institute for Chartered Accountants in England and Wales, will have an interest rate of 15 basis points over Libor (the inter-bank lending rate). The rate will be fixed at Libor on the day the bond is launched, 21 May.

"We are trying to be very transparent and give charities a rate of return above what they would get in a normal market," said Marc Frost, head of public and third sector at EAB. "This rate will compare very favourably with a standard three-month deposit."

Given the minimum deposit of £500,000, Frost admits the bond will not be appropriate for all charities.

"It's probably going to be accessible to the larger charities," he said. "If you look at some of our competitors, they will set the minimum at £10,000. But we didn't want to bog our system down with multiple applications for small amounts."

John Hildebrand, head of charities at Investec, said: "At the moment I would be sticking with UK clearing banks with an A1+ short-term credit rating or a highly rated money market fund.

"An interest rate attached to Libor may well prove attractive, but I think charities need to be very careful where they place their money."

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