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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

Falling interest rates hit charities in the pocket

This news post is 9 months old

Organisations have been advised to shop around to get the best deal from their bank accounts

New research has revealed that falling interest rates are hitting charities in the pocket.

A study from the charity investment arm of independent investment manager James Hambro and Partners has revealed a significant drop in the interest rates on cash deposit accounts for UK charities.

The analysis reveals that the average interest rate on a deposit of £10,000 from a charity cash deposit account in January 2018 was 0.54% AER, but this had dropped to 0.28% AER by August 2021.  The corresponding figures for deposits of £100,000 were 0.57% AER and 0.30% AER respectively.  For deposits of £1 million they were 0.54% AER and 0.31% AER.

In addition to this, in January 2018, there were 82 savings accounts open to charities (48% of savings accounts open to charities) offering an interest rate of 0.5% AER or more on balances of £50,000, and 34 (20% of the market) paying over 1% AER.  By August 2021, the corresponding figures were 29 (20%) and six (4.1% of savings accounts open to charities).

Percentage of deposit cash accounts open to charities paying this rate of interest (AER) (on £50k balance)Percentage and number of cash deposit accounts open to charities (January 2018)Percentage and number and percentage of cash deposit accounts open to charities (August 2021)
0%0.58% (1/172)0%
Less than 0.1% but more than 0%13.95% (24/172)26.35% (39/148)
0.10%9.88% (17/172)10.81% (16/148)
Between 0.11% and 0.25%14.53% (25/172)22.97% (34/148)
Between 0.26% and 0.50%18.02% (31/172)23.65% (35/148)
Between 0.51% and 0.75%12.21% (21/172)8.11% (12/148)
Between 0.76% and 1.00%11.04% (19/172)4.05% (6/148)
Between 1.05% and 1.25%8.72% (15/172)3.38% (5/148)
Between 1.26% and 1.50%7.56% (13/172)0% (0/148)
Over 1.5%3.49% (6/172)0.68% (1/148)

The ongoing fall in interest rates has had a detrimental impact on charities. The UK base interest rate is currently at its lowest level for over 300 years. Analysis of industry data by James Hambro and Partners reveals that at the end of 2018, over 85% of charity cash deposit accounts received a rate of interest (AER) of 0.5% or less. This compares to 57% in January 2018.

Nicola Barber, partner and head of charities, James Hambro and Partners, said: “Many charities have significant sums of money in cash deposit accounts which often forms a crucial part of the organisation’s reserves.  In some cases though a proportion of this cash could be available to invest potentially earning a higher return to help support operational costs.  Following the Bank of England base rate cut to 0.1% in March 2020, banks and building societies slashed their rates and, taking inflation into account, most charities are receiving negative returns on their cash deposits.

“There is still competition in the charity cash deposit account market, so it pays to shop around to find the best possible rate.  Around one in four cash deposit accounts currently offer charities less than 0.1% AER on balances of £50,000, but there are almost 30 accounts paying 0.5% AER or more.

“However, as charities come under greater financial pressure during the pandemic and many are seeing a rise in demand for their services, we are seeing more voluntary organisations looking carefully at their reserves to consider if they can afford to take on more risk in order to generate a potentially better return.”   

Allison Wood, finance director of cancer charity Maggie’s, said: “The coronavirus crisis has been one of the most challenging periods for Maggie’s in its 25-year history. 

"We know that thousands of people with cancer have had their treatment disrupted, and this, coupled with the additional emotional stress placed on them during the pandemic has meant demand for our services has never been greater. This came alongside the challenge of fundraising in a very changed environment.  With deposit interest rates at historically low levels, we have worked closely with the team at James Hambro and Partners to invest in a number of differentiated multi-asset portfolios that meet our specific objectives taking into account our cashflow requirements and time horizons.”



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