A rigidity in the interbank market was that deposits once taken, could not be traded during their life (even though this was very short term). To meet this need, from the late 1960s certificates of deposit (CD) were introduced which could be traded on a secondary market.
OverviewIt is issued and payable primarily in London and in minimum deposits of £100,000. By market convention it is a short-term marketable instrument with a maturity up to five years, although longer maturities can now be issued. Despite this, the vast majority of certificates are issued for periods of less than six months. Interest can be at a fixed or variable rate, although they may also be issued at a discount and without a coupon. Interest bearing certificates are normally issued at par for large amounts. The rate of interest is closely related to the current market rate on sterling interbank deposits of a corresponding maturity. They are readily negotiable in the secondary market. CDs are not eligible as security in the Bank’s open market operations.
Most of these sterling certificates are held by banks operating in the United Kingdom , building societies and other money market players. The remainder are held mainly by other financial institutions and by non-financial companies; holdings abroad are small and personal holdings negligible.
The rates shown are representative secondary money-market rates for clearing bank CDs. Since 1985, the mean of the bid and offer rates at about 8.30 am are published; data for earlier years are for the mean of the range of rates over the day.