Although the increasing popularity of cash management funds has not resulted in a rush of alternative benefits from the UK banking sector as a whole, the new arm of direct banking may be about to fill that gap and seduce fund managers back to a more traditional home for their cash.
Bank of Scotland is the latest to push its direct banking service, offering interest rates which it believes are better than many pension funds’ custodian banks which may be holding their cash on deposit. Alan McMillan at the bank’s Edinburgh headquarters says “We are not taking the position that we offer the best possible yield around, as there may well be instruments which provide a higher yield, but what we are saying to fund managers is compare the interest rates we are offering with what you get from your existing bank.”
At the moment Bank of Scotland Direct offers a pension fund cheque account with rates of 5.75% on deposits up to £99,999 and 6% on those of £100,000 and above. “For the_latter we also guarantee an annual rate greater than the Bank of Scotland base rate up to February 2002, when that guarantee will be reviewed, and re-set over a fixed period.”
McMillan says the documentation has been designed for the industry, and that this is a UK-based product aimed at Inland Revenue approved funds. Clearly as it is a cheque account it also provides instant access, bears no charges, and a dedicated line manager within the bank.