Take an interest in your war-chest

A charity’s reserves should be a source of income, not inconvenience

Did you know that cash reserves in the bank averages over £100,000 per charity (current NCVO Civil Society Almanac) and totals £16 billion in the UK according to the Charity Banking Spotlight? And did you also know that - for charities whose war-chest will not be needed for some time - returns as high as 2.5 per cent are possible? So you’d think that cash deposits would be a good source of income for the charity sector?

Well no actually… research published by Third Sector magazine last month, showed that 85 per cent of charities earn less than the Bank of England’s Base Rate of 0.5 per cent interest, with nearly a third not even earning a measly 0.1 per cent. When you consider that, a fag packet calculation of lost income easily runs into the tens of millions.

Okay, not all charities are able to lock-away their reserves for the long-term. The Foundation for Social Improvement recently reported that a third of charities had to dip into their reserves in the past quarter. However, even for easy-access accounts, there are still rates of 0.75 per cent available atop the Best Buy Table of Charity Savings Accounts (a new tool launched today by Back of the Sofa in partnership with the UK’s leading independent expert in savings accounts, Savings Champion).

So why are so few taking advantage of the extra income available? The answer could lie in the number of charities using business bank accounts to look after their cash and, worse still, those offered through High Street banks. The top five banks in the Charity Banking Spotlight are all High street names - representing three quarters of the charities between them - over half of whom have been with the same bank for at least a decade. Yes, while it makes sense for charities to have a current account with a mainstream bank to manage their day-to-day banking, it doesn’t mean they have to use the same bank to look after their reserves. It is important to note that High Street banks make a noticeable absence from the Charity Best Buy Table and fail to offer any decent long-term returns at all with no deposit accounts longer than 90 days.

Worse still for those who’ve relied on business bank accounts in the past… they may well have had tax deducted on any interest earned prior to April 2016 (when the banks began paying gross interest). NB This can be reclaimed up to fours years so there may be some rebates from banks available (eg from the period April 2014 to April 2016).

Surely then the charity sector itself should offers safer havens for the war-chests of its troops? Hmmm…  the type of easy access account approved by the Charity Commission (Common Deposit Funds) currently earn an average of 0.35 per cent, with funds deposited falling outside the protection of the Financial Services Compensation Scheme. Again, they fall short of Charity Best Buy Table which tends to be populated by challenger banks (eg Virgin Money) and building societies (eg Skipton Building Society), with some offering charity-only products (eg ‘Treasurers Deposit Account’).


To support those wanting to use the Charity Best Buy Table, there is a dedicated free phone line and specialist advisors at Savings Champion who can also help in setting up accounts if required. This service - the Charity Cash Advice Service - has a one-off fee which is 0.2% of the total sum being deposited. For more details, call 0808 178 1358 to speak to an advisor or visit www.backofthesofa.com/906038838-pdf.

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