By David Prosser
Charities are under pressure. The Charities Aid Foundation warns the British public donated 10% less to good causes last year – around £1.4bn less than in 2024 – in the first such drop for five years. Meanwhile, charities’ outgoings are rising, with inflation driving up operating costs and demand for support also increasing; the Charity Commission says the number of people getting help from UK charities has trebled over the past three years.
Against this backdrop, charities and their trustees are exploring ways of making their money go further. But that shouldn’t just be a question of how to allocate precious resources to maximise impact. Trustees also have a golden opportunity to sweat their assets before disbursing them, with charities’ reserves representing an often-untapped source of additional income.
Make savings work harder
The problem is that many charities hold substantial reserves but don’t earn as much interest on this money as possible. One recent survey found 84% of charities in the UK hold more than £50,000 in cash accounts, including 69% that hold more than £100,000. But fewer than half have opened a separate savings account away from the bank or building society with which they do their day-to-day banking. Often, their reserves sit in current accounts that are paying very meagre rates of interest – or no interest at all.
There are lots of reasons why charities aren’t shopping around for a better deal on their money. Some don’t realise just how much interest they’re missing out on; others are daunted by the challenge of comparing multiple savings products for charities, particularly as account providers regularly change interest rates.
Charities also worry about access to their money. They rightly want to be sure they can get to their cash at the times when it is most needed by those they serve. Spikes in demand for support are unpredictable and can occur very quickly. Charities are therefore reluctant to tie money up in accounts that require them to give significant periods of notice when they want to make withdrawals; often the perception is that such accounts are the only option for boosting returns.
Nevertheless, the cost of holding money in accounts paying little or no interest is potentially considerable. The most generous savings accounts available to charities in the UK today offer around 4% annual interest – on a £100,000 deposit, that’s £4,000 of extra income available from holding money with a provider paying competitive rates, rather than leaving the cash languishing in a current account which may be paying nothing. On larger balances, the gains will be even greater.
In other words, charities holding large sums in current accounts – or other accounts paying poor rates of interest – are missing out. They’re foregoing additional income they could make good use of even at times when their finances are in the best possible shape, let alone when they’re facing so much pressure given falling donations and mounting costs.
A strategy for success
How, then, to rethink your charity’s approach to savings – to take advantage of the opportunity to secure additional income while remaining conscious of issues such as account access?
First, it makes sense to formalise the process of shopping around. Charities that schedule regular reviews of their savings strategy – agreeing to hold an annual review, perhaps – will automatically put themselves in a position to identify opportunities to maximise returns.
Above all, don’t assume your current account provider or main banking partner will pay competitive savings rates. You may be very happy with the service your charity is getting from its bank, but that doesn’t mean it’s the best place to hold the organisation’s reserves. Independent analysts such as Moneyfacts provide a constant read-out of all the savings account products available to charities, making it easy to check who pays what.
Second, think about segmenting your charity’s reserves. There will definitely be a certain amount of funds it has to keep immediately available for day-to-day needs. There might then be a second pot of cash that the charity would like to be able to access relatively quickly – for a new project say, or a known commitment in a few weeks or months. There could then be a third sum of money earmarked for long-term purposes.
Having divided the charity’s reserves in this way, identify the best account in which to hold each pot. Funds potentially needed immediately will need to sit in an easy access account, with complete freedom on withdrawals, but even here the rates on offer vary enormously. United Trust Bank’s variable rate Easy Access Account, for example, currently pays 3.5% Gross/AER* annual interest with a minimum balance of £5,000 – compared to just 0.5% offered by one high street bank.
On funds where you can give notice of withdrawals – whether shorter or longer periods of notice – you may be able to secure higher interest rates. United Trust Bank currently offers 3.7% Gross/AER* fixed rate on its 30-Day Notice Issue 1 fixed term account, for example, with the added benefit of being able to withdraw up to 20% of the balance without notice or penalty once a year. You may also consider a fixed-term bond, where the charity gets its money back, with interest, at the end of a set term. United Trust Bank’s fixed-term Charity 3 Month Bond currently pays a fixed interest rate worth 3.9% Gross/AER* annually; the Bank’s 2 Year Bond pays a fixed rate of 4.10% Gross/AER* (fixed-term). These accounts all have a minimum balance of £5,000.
Extra help may be available
For charities struggling to work through these steps, getting professional help with cash management can pay off. A specialist adviser can help your charity to analyse its liquidity needs and, therefore, to optimise the way in which you segment your savings. An adviser will also be able to help you identify the best possible home for each chunk of reserves. UTB’s Deposit Solutions team provide such a service for free for charities, individuals and businesses with £1m or more to invest.
Such help can also be useful because charities often need to take a view on how interest rates are likely to change. This will have an impact on whether you opt for a variable or fixed savings rate, say. It may also influence your choice of term accounts – sometimes, for example, providers may provide slightly lower rates of interest on longer-term bonds because they expect rates to fall over time.
The bottom line here is that taking action on savings – with or without professional assistance – should pay of. It could help charities to relieve some of the very tough financial pressures they currently face – and, above all, to support more of the people who need their help.
*AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Gross is the interest rate without the deduction of income tax. Interest is paid gross into your account.
United trust Bank (UTB) has an independent banking license and we are not affiliated with any other banks or building societies. This means that our eligible customers benefit from the full protection provided by the government backed Financial Services Compensation Scheme (FSCS) which protects savers in the event of a bank’s failure. The FSCS protects the first £120,000 of any savings an eligible account holder has deposited with a bank or building society. For joint accounts, each eligible account holder benefits from the same £120,000 of protection. This means that two eligible joint account holders can claim up to £240,000 between them.
Although this article may contain helpful information and tips, this is not advice. You may wish to seek advice from a financial advisor if you are unsure about next steps.