Finance

Charity savings options

01 February 2017

How can your charity make the most of its money?

As a charity, it is your duty to make the most of the funds you are responsible for, even if you are not actually spending them.

Savings options for charities are much more diverse than many realise and there is the potential to make good returns. To understand which account will be best for your charity, you have to understand that all the options sit on a scale; with convenience at one end and returns at the other.  

The most convenient account your charity can have is a current account. You can access your funds instantly and via a means of your choosing, depending on what you have agreed with the bank.

Of course, you also cannot expect to get much of a return, with most of the top accounts providing 0% AER[1]. These accounts are not intended for holding significant funds for any length of time. Doing so would arguably go against Charity Commission Regulation 8 (CC8), which requires all charities to ensure the rate of interest on any account is competitive[2].

To start seeing appropriate returns you will need to sacrifice a little convenience and set up a charity savings account. There is a variety available, ranging from the lightly covenanted; with few restrictions on accessing your money, to heavily covenanted; which will generally have the best rate but can make you wait to access your money should you need it. In many cases returns are also dependent on how much you are holding in the account, adding a further consideration.

When making your decision, you need to think about the risks to your organisation should you not able to access funds and what price makes that risk acceptable to you. The difference between 0.05% AER and 2.00% AER on £100,000 of savings is £1950.00 in annual interest[3] but not being able to access that £100,000 when you need it could be catastrophic.

As mentioned earlier, accounts sit on a spectrum of return vs convenience and there are savings accounts that require no notice to withdraw your funds. Known as ‘instant access’, they generally offer returns of around 0.5% AER and are clearly superior to a current account for the purposes of holding your money but may be less convenient in terms of online banking and other services. Notice periods go up from there, starting at seven days and increasing incrementally up to three years. The longer the period the better the rate of return, topping out at around 1.2-1.4% AER.

Alternatively, if your charity has funds it does not need to access for some time, you may want to explore savings bonds. Unlike a bank account these have a fixed term, meaning they end at a certain date and pay interest up until that date. You cannot access your funds until the end of the term, which can be longer than even the longest notice period for a charity account. In return you will generally receive a better rate, with five year bonds currently offering 2.00% AER on average[4].

The examples cited here are current but it is worth remembering that market conditions change and this can change what is available. While every charity has a unique financial makeup and governance structure, the market is large and there will be a savings option that suits you.

Even if you already have a savings account of one sort or another, it is worth checking to make sure you are still getting the best deal.

When choosing either a new account or whether to switch, the key is to assess your organisations financial need, its appetite for risk and then to shop around.   

[1] http://www.money.co.uk/current-accounts/charity-bank-accounts.htm

 

[2] https://www.gov.uk/government/publications/internal-financial-controls-for-charities-cc8/internal-financial-controls-for-charities#internal-financial-controls-in-practice---income

 

[3] http://www.fairinvestment.co.uk/charity_savings_accounts.aspx

 

[4] http://www.moneysupermarket.com/savings/fixed-rate-bonds/

 

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Thomas Collinge

Thomas Collinge is a political and social affairs journalist, and public affairs assistant, at Slack Communications.

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