Why are charities’ savings reportedly earning less interest than the base rate?

By Feb 06, 2018

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Research recently conducted by Third Sector and Flagstone reports that 85 per cent of charities are earning less interest on their money than the Bank of England base rate of 0.5 per cent and nearly a third are earning less than 0.1 per cent interest.

In a sector where income is hard won, and every pound makes a difference to a charity’s cause, it’s disheartening to see them not earning a better rate of interest on their deposits.

The research suggests a few underlying problems that might explain why charities are earning low rates of interest.

Many charities recognised that they were placing all their deposits with one bank. There may be better rates available at other banks and spreading risk can be a wise strategy and, with eligible deposits of up to £85,000 being protected by the Financial Services Compensation Scheme.

The research also flags that 58 per cent of charities are deterred by the amount of time and paperwork involved in setting up new accounts. With trustees often needing to sign paperwork this can be the case, however many banks have worked hard to simplify this process. For example, Charity Bank has introduced online applications across all its deposit products, meaning it can take days instead of weeks to open a new account.

Whatever the reason for charities not earning what they could on deposits, it’s clear that they, and those they serve, could benefit from a review of the savings options available to them. It’s worth considering how frequently deposits may need to be accessed, and how much notice can be given for withdrawing money. Many banks, including Charity Bank, offer higher interest rates for longer fixed term accounts or those with longer withdrawal notice periods. It can therefore be beneficial to hold funds in more than one type of account.

I would hope that if this research was repeated in 12-18 months’ time there would be positive indications that charities have sought out better rates of interest, rather than just sticking where they are for convenience.

Justin Hort is Head of Savings at Charity Bank, the ethical bank owned by the social sector. You can email Justin at jhort@charitybank.org or view details of Charity Bank’s savings accounts here.

85 per cent of charities are earning less interest on their money than the Bank of England base rate

Research carried out by Third Sector