Could higher interest rates benefit your charity?
At our recent charity seminar in Exeter, we found there was lots of interest from delegates about the issue of charity deposits and how higher interest rates could benefit their organisation.
As a guest speaker, I asked attendees whether they were being proactive (or not) in taking advantage of the current economic situation and making the most of recent interest rate rises.
At Westcotts Chartered Financial Planners, we advise many charities in the South West on their financial planning which includes:
- Managing short term reserves using a range of cash deposit arrangements
- Advising on longer term reserves, perhaps in a bespoke investment portfolio to match the charity’s specific objectives
- And advising on managing restricted funds where income may need to be used for a specific purpose, determined by a testator’s bequest.
Charity cash platforms
Another measure that I talked about at the seminar was the idea of a charity cash platform – what this means is that trustees can spread their capital across a range of banks to ensure they were 100 per cent covered by the Financial Services Compensation Scheme (FSCS).
These measures protect deposits of up to £85,000 per institution. Eligibility depends on where the deposits are held and potentially also the corporate structure of the charity.
On a cash platform, which we can help arrange for your charity, it is currently possible (at the time of writing this) to generate returns of at least 2.5 percent gross on instant access reserves and over 4 percent on one-year deposits; this is before any cash platform fees that typically start at 0.2 percent, including VAT.
With a cash platform, the charity makes one application and then the money can be deployed across multiple institutions.
This avoids cumbersome multiple account applications and if rates change, it could also be possible to reposition the cash quickly to ensure that you achieve the best rates available for your charity.
Exercising care and attention
It is important to stress that trustees are duty bound to firstly ensure they exercise care and attention with long-term financial investments.
Under the CC14 guidelines from the Charity Commission, trustees should also take advice from an independent professional if they do not have the knowledge and experience in this area themselves.
At Westcotts, we can offer our clients access to innovative ways of managing charity reserves and this is just one option available in the marketplace.
With our help, your charity does not need to patiently wait for your existing provider update their rates when the Bank of England rate is increased.
Achieving a market leading rate of interest on your reserves should be a priority in 2022, given this year’s inflationary pressures.
Remember, you are responsible for maximising your charity’s annual financial returns where possible and by doing nothing you could attract negative scrutiny from your stakeholders, especially when fundraising is under pressure.
Trustees should make proactive, positive decisions with their financial planning and then tell everyone about them in their annual report.
Our team are here to help, so get in touch for more information or advice.