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LIBOR-linked rates outstrip the Bank of England base rate during last 12 months


Analysis by Investec shows that one month LIBOR has consistently outperformed the base rate since the beginning of August 2007.

Investec’s analysis shows that since 1 August 2007, while the Bank of England base rate has fallen by 0.75%, one month LIBOR has declined less, falling only 0.53% over the same period2. Since the beginning of August 2007, the gap between the two rates has widened from 0.16% to 0.38%. Business bank account holders can seek institutional rates and take advantage of accounts linked to LIBOR.

Investec has developed a range of innovative cash products for businesses, including the Investec LIBOR Plus Deposit account3, which allows small and medium-sized businesses to access market leading institutional cash rates. It does this by tracking, on a daily basis, the money market one-month LIBOR rate, the higher side of the market, and paying a premium of 0.05% above this rate.

The Investec LIBOR Plus Deposit account is available for business clients with balances of between £500,000 and £5,000,000 and guarantees never to pay a return that is less than the UK base rate. It is currently paying 5.55% gross AER4.

James Featherstone, Investec Private Bank, Manchester said, “While the Bank of England has cut the base rate on three occasions during the past year, one month LIBOR has remained high. Business owners, who tend to hold a lot of cash on deposit, should be able to take advantage of this. Unfortunately, these buoyant institutional rates are often only accessible to large organisations and many small and medium-sized businesses will be using accounts linked to the Bank of England base rate. Most of these will have seen their rates cut repeatedly, but this need not necessarily be the case.”

To find out more about Investec Private Bank’s unique cash products, visit: www.investecprivatebank.co.uk.

1 The British Bankers Association (BBA) LIBOR is the most widely used benchmark or reference rate for short term interest rates. It is compiled by the BBA and released to the market at about 11.00am each day. LIBOR stands for the London Interbank Offered Rate and is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market.
2 On August 1 2007 one month LIBOR was 5.91%. On 1 August 2008 it was 5.38%. This represents a drop of 0.53%.
3 The Libor Plus Deposit Account is a one month notice account. The minimum deposit is £500,000 and the maximum is £5,000,000.
4 The Annual Equivalent Rate (AER) is a notional rate, which illustrates the contractual interest rate as if paid and compounded on an annual basis. Interest rates are variable and subject to change. The net rate is calculated as the gross rate subject to lower rate tax. The rate is correct as at 3 September 2008.