As a UK-based charity, how you manage your finances is a crucial part of how you support your cause.
Maintaining strong financial foundations through managed savings is arguably as important as the donations and grants you receive.
Therefore, charity savings accounts play a vital role in the success of your work. This is because they are the most secure and efficient way to grow your funds whilst adhering to strict financial regulations.
In this article, we take a good look at charity savings accounts in the UK and aim to provide you with some helpful insights to assist you and your organisation.
Topics covered here
- What is a charity savings account (and how is it different to other savings solutions)?
- How charity accounts differ to personal and business accounts
- What are the different types of charity accounts available?
- Key things to consider when choosing a charity savings account
What is a Charity Savings Account?
A charity savings account is designed specifically for registered charities in the UK.
It serves as a secure and specialised account where a charity can deposit its funds and earn interest on savings.
Offered by most banks and building societies, they are designed to meet the unique needs of charitable organisations.
Primarily, they provide a safe and reliable place for charities to store their funds. Having a dedicated account allows charities to separate operational and donation funds from other business finances.
This is essential for maintaining transparency, accountability, and financial integrity, and making sure that funds are utilised exclusively for charitable purposes.
However, there are a wide range of other benefits beyond keeping your money safe and well-organised.
Interest rates are a key factor, as the interest earnt on your savings will be a valuable source of additional income for the organisation.
Meanwhile, choosing a charity savings account that’s more flexible can allow you to manage your funds with more agility.
You will find that there are various levels of access to your money, depending on the type of account you choose.
Generally speaking, the longer you lock away your money, or the more notice you have to give to make a withdrawal, the higher rate of interest your savings will earn.
For example, some accounts offer instant access, allowing charities to withdraw funds whenever needed, while others may require a notice period or have fixed terms.
These accounts may offer higher interest rates. The choice of account type depends on the specific financial goals and requirements you have for your charity.
How charity accounts differ to personal and business accounts
It is important to note that charity savings accounts are distinct from regular personal savings accounts or business accounts.
Charity accounts are specifically designed to cater to the unique regulatory and operational requirements of charities.
As such, they come with additional features and benefits that are tailored to the charitable sector.
These can include specialised customer support, preferential interest rates, or access to additional services that can aid charities in managing their finances effectively.
When opening a charity savings account, it is essential to ensure that the financial institution offering the account is reputable and fully authorised by organisations including the Financial Conduct Authority (FCA).
The FCA regulates financial services in the UK and ensures that the institution operates within the established guidelines and standards.
Additionally, the account should be protected 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.
Overall, a charity savings account provides registered charities in the UK with a secure and dedicated platform to store their funds, earn interest, and effectively manage their finances.
Choosing the right type of account and partnering with a reputable deposit account provider enables charities to optimise their financial resources. This will contribute to the long-term sustainability of their charitable activities.
The Different Types of Charity Savings Accounts
Instant access accounts
Instant access savings accounts are designed for charities that need the flexibility of and convenience of having immediate access to their funds.
With and instant access account, charities can deposit and withdraw money as needed without any restrictions or penalties.
Instant access accounts offer high levels of convenience, such as being able to access funds for day-to-day expenses (or in emergency situations).
However, they generally provide savers with lower interest rates compared to other account types, such as fixed-term bonds and notice accounts.
Fixed-term bonds
Fixed-term bonds are savings accounts that require charities to deposit their funds for a predetermined period. This typically ranges from a few months to several years.
These accounts often offer higher interest rates than instant access accounts, making them an attractive option if there are surplus funds that can be locked 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 more substantial returns on their savings as long as the funds remain untouched for the agreed-upon period.
Notice accounts
Notice accounts require charities to provide advance notice before making a withdrawal.
This will typically between 30 and 90 days.
They strike a balance between accessibility and earning potential. This is because they usually offer more competitive interest rates than instant access accounts, whilst allowing a greater degree of flexibility than fixed-term bonds.
Notice accounts are suitable for charities with relatively stable cash flow and those that can plan their expenses in advance.
By giving notice within the required timeframe, you can access funds while still earning interest.
Key things to consider when selecting a type of charity savings account
When choosing the best bank account for savings, charities should consider their cash flow requirements, the availability of surplus funds, and the level of flexibility needed to access their money.
Let’s look at these factors in more detail.
Liquidity needs
If the charity may require immediate access to funds for day-to-day operations or unexpected expenses, an instant access account will offer quick and easy withdrawals.
This type of account usually allows for unrestricted withdrawals without penalties but comes with lower interest rates compared to fixed-rate bonds and notice savings accounts.
Financial planning
If a charity has surplus funds that it can be committed for a fixed period without needing immediate access, a fixed-term bond may provide a higher rate of interest.
However, it is crucial to carefully assess the charity’s future financial needs before committing to a fixed-rate bond.
Stability of cash flow
If the charity enjoys a relatively stable cash flow and it can plan its expenses in advance, then a notice account could offer a balance between accessibility and earning potential.
The notice period will allow the charity to give advance notice of a withdrawal while still earning competitive interest rates.
It is advisable for charities to assess their financial requirements to determine the most suitable type of account that aligns with their specific goals and needs.
By understanding the key features and benefits of each type of charity savings account, a charity can make an informed decision to maximise the earning potential of their funds whilst ensuring access to the necessary resources when required.
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.