Managing cash effectively is crucial for charities seeking to balance financial stability with long-term sustainability. Yet, many organisations are missing out on substantial interest income simply because they are not optimising how they hold and structure their cash reserves. Given the challenging financial climate, making every pound work harder has never been more important.
The Charity Banking Landscape in the UK
The UK charity sector generates a huge amount of income and across the sector £billions are held in reserves. However, many organisations are not taking advantage of competitive interest rates with many charities defaulting to their current account provider rather than exploring better savings options.
While the major banks dominate the sector, they often offer interest rates on deposits well below the market leaders and for charities reliant on generating income from their reserves, such missed opportunities can be expensive.
Why Charities Can Struggle to Manage Cash Effectively
There are several factors contributing to charities not making their money work as hard as it could:
Lack of awareness: Many charities do not shop around for better savings rates, often assuming their current provider offers the best or a ‘near enough’ deal.
Fear of reduced access: Charities have to keep a close eye on liquidity, and they often keep their cash readily available rather than placing at least some in higher-yield accounts which may restrict their access.
Too much choice: The dynamic interest rate environment makes it difficult to determine the best account type, so it seems easier to just to do nothing.
No time or resources: Many charities lack the time and/or resource to regularly review savings options and move funds to more competitive accounts.
How to Structure Your Charity’s Savings for Maximum Returns
Adopting a structured approach to cash management may help to overcome these problems.
Segment your funds: Identify what cash you need immediate access to versus what can be set aside for longer periods. Creating a tiered structure ensures liquidity while maximising returns on funds you don’t need on hand straight away.
Immediate access: Keep essential operational funds in easy-access accounts but be aware of the substantial differences between interest rates payable on accounts aimed at charities and clubs. For example, United Trust Bank’s Charity Easy Access account, with a minimum balance of £5000, is currently paying 3.6% Gross AER*, whilst Vernon Building Society’s easy access account for Charities, Clubs and Associations pays 2% AER with a minimum balance of £1.00. Market Harborough Building Society’s Charity Easy Access account is currently paying just 1.1% AER with a minimum balance of £100.
Short-term reserves: Consider notice accounts that offer better interest rates but require a set notice period for withdrawals (e.g., 40-day or 90-day accounts). United Trust Bank’s Charity 40 Day Notice Account is currently paying 3.95% Gross/AER*.
Longer-term reserves: For funds that can be locked away for longer, fixed-term deposit accounts can provide even higher returns. United Trust Bank’s Charity 1 Year Bond is currently paying 4.36% Gross/AER* to those charities who have money they shouldn’t need to touch for a year.
In case of emergency…
Even the most meticulous planning doesn’t always cater for every unexpected event and sometimes there may be circumstances when charities simply have to access some of the money they thought they could lock away. In response to charities wishing to make more of their cash reserves whilst also satisfying their liquidity needs, United Trust Bank introduced what it believes to be a unique feature amongst UK Notice and Fixed Term Charity Deposit accounts. Once per year, account holders can withdraw up to 20% of their balance without notice and without penalty, enabling them to benefit from higher rates of interest whilst allowing them to respond to unplanned or emergency situations quickly.
Three steps to better returns
– Shop around for the best interest rates: Don’t rely on your current account or main banking provider to offer the most competitive rates.
– Regularly review your savings strategy: Interest rates fluctuate, so reviewing your savings portfolio every six months can help to ensure you are getting the best returns. Moving funds when better opportunities arise can significantly enhance your income.
– Seek professional help: If structuring your cash reserves feels complex or time consuming, speak to an advisor or savings provider specialising in charity finance. They can help establish your liquidity needs and ensure an optimal balance between access and competitive returns.
Making Your Charity’s Money Work Harder
Getting cash management right can significantly boost your charity’s financial performance and resilience. By segmenting funds, shopping around for the best rates, and regularly reviewing your savings strategy, charities can ensure they are making the most of their reserves. With demands on charities increasing, every extra pound earned in interest is a pound that can be reinvested into delivering your mission.
All interest rates quoted are correct on the 23 April 2025. Comparison of charity accounts from other providers carried out using Moneyfactscompare on 23 April 2025.
* AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
Although this article may contain helpful information and tips, this is not financial advice. You should seek advice from a financial advisor if you are unsure about what is best for your Charity’s specific requirements.