According to the Charities Aid Foundation (CAF) 2022 was the most generous year ever for giving in Britain with an estimated £12.7bn in charitable donations, up £2bn on the year before.
However, CAF’s research also found that this wasn’t caused so much by more people giving, but by the same people giving more. The war in Ukraine also prompted a considerable spike in donations to charities providing aid to the Ukrainian people. So, as the cost of living crisis and higher interest rates continue to take sizeable bites out of many household incomes, charities may find that supporters cutting back on their regular expenses look at charity giving as an expense they regretfully can no longer afford.
Also worrying is that volunteering and engagement levels haven’t picked up since the end of the Covid pandemic when lock-down restrictions prevented participation. CAF fear this may take years to rebuild, or worse, current levels could be locked-in.
In short, charities face challenging times ahead when trying to maintain the vital services and support on which so many now rely and managing their money effectively has become even more important.
Make your money work harder
For several years, when interest rates were delivering paltry returns on deposits, many charities and businesses paid little attention to making the most of their cash reserves. At a fraction of 1 percent, it was deemed hardly worth the effort. However, with the Bank of England delivering its 14th interest rate rise since December 2021, taking the Base Rate to 5.25%, the extra revenue which can be made from money already in the ‘bank’ has made financial directors and charity treasurers take a more proactive approach to making their money work harder.
By keeping their surplus money in a dedicated account, charities can separate their day to day operational funds from other charity finances. This separation is essential for maintaining transparency, accountability, and financial integrity. And of course, money deposited into a charity deposit account will almost certainly earn more interest than if it is held as a surplus balance in a current account.
At the time of writing, even a 3-month Charity Bond from UTB which has a minimum deposit of £5,000, is paying a 3.95% Gross / 4.01% AER* (fixed, interest paid on maturity), and if charities can commit surplus funds for longer periods, the rates are even higher.
Some charity deposit accounts enable you to manage your funds flexibly and many come with additional features and benefits that are tailored to the charity sector.
These can include specialised customer support, preferential interest rates, or access to additional financial services that can aid charities in managing their finances effectively.
Earlier this year, UTB launched its new Deposit Solutions service for customers with over £1m to deposit. The Deposit Solutions team provide a relationship based service delivering tailored solutions that match customers’ liquidity needs and offer a range of competitively priced deposit options.
UTB customers also benefit from the protection provided by the Financial Services Compensation Scheme (FSCS), which safeguards eligible deposits up to £85,000 per person or, in the case of charities and businesses, per authorised institution.
By choosing the right type of account and partnering with a reputable deposit account provider, charities can optimise their financial resources which contributes to the long-term sustainability of their work.
Fixed-term bonds require charities to deposit their funds for a predetermined period, typically ranging from a few months to several years.
These accounts often offer higher interest rates compared to instant access accounts, making them an attractive option for charities that have surplus funds they can lock away for a specific timeframe.
The longer the duration of the bond, the higher the interest rate tends to be.
Fixed-term bonds provide charities with the opportunity to earn a more substantial return on their deposits as long as the funds remain untouched for the agreed-upon period.
Notice accounts require charities to provide advance notice, typically between 30 and 90 days, before making a withdrawal.
These accounts strike a balance between accessibility and earning potential. They usually offer more competitive interest rates and provide charities with a slightly higher return compared to instant access accounts.
Notice accounts are suitable for charities with relatively stable cash flow and those that can plan their expenses in advance.
The right account for your needs
When choosing the best account for their deposits, charities should consider their cash flow requirements, the availability of surplus funds, and the level of flexibility needed to access the money. By understanding the features and benefits of each type of account, charities can make informed decisions to maximise the earning potential of their funds while ensuring access to necessary resources when required.
If you would like to know more about UTB’s range of Charity Deposit accounts or our Deposits Solutions service, please contact Stephanie Vincent on [email protected] or call 020 3862 1041.
*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. The interest rate is a fixed rate and paid on maturity. The minimum deposit is £5,000.00 per account. The maximum deposit is £1 million per account.
Although this email and 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 what’s best for your circumstances.