Cash deposits: The search for yield, security and convenience

The bonds, offering some of the strongest rates of interest in the industry at the time, illustrate one of the silver linings from the recent cost-of-living crisis and increasing interest rates, i.e., that more attractive rates have become available for savers. Sadly, however for the not-for-profit sector, the best rates are often not available for Charities.

While the Bank of England base rate is currently 5.25%, a recent search through available interest rates suggests that Charities are ineligible for many of the best rates available, such as the short-lived NS&I bonds for example. Indeed, even where more attractive rates are on offer, there are other hurdles to overcome. Often, though not always, the strongest rates of interest are available from provincial building societies or foreign or challenger banks that either don’t have a credit rating or whose rating would fall below a typical charity’s risk tolerance.

This credit risk could be offset by spreading cash between multiple banks and restricting any individual deposit to £85,000 or less at organisations covered by the FSCS*, though the administration involved in opening new accounts can prove a burden. Fancy asking every Trustee to sign an application form and provide certified copies of their passport and driving licence for each account you want to open? No, didn’t think so.

Happily, there are options available that can help. Over the course of the past year or so, some Charities have turned to Cash platforms. These platforms offer the ability to access and manage multiple accounts from multiple banks in one place with the convenience that often only one application is required for the platform itself, rather than per account. The platforms can also sometimes offer preferential rates of interest or terms that are not available directly from the banks. The challenge with some of the provincial building societies and the foreign or challenger banks does not, however, go away and there is the added complication of needing to assess the platform as well as the deposit provider.

At Investec Wealth & Investment (UK), our mantra of ‘Helping you help others’, is more than a marketing slogan and we have been exploring how we can help. We pride ourselves on working in partnership with our clients and are actively helping a number of charities with their short-term reserves. Our approach offers convenience, risk management and competitive rates of return. How do we do this? Through a combination of Treasury Bills, short-dated Gilts and Money Market funds, all selected to meet our client’s specific needs regarding liquidity, risk and targeted rates of return.

Treasury Bills and short-dated Gilts are both issued by HM Treasury and guaranteed by the UK government, providing one of the safest investments available if held until maturity (you can still lose money if you sell before maturity and the price has decreased). Money Market funds, meanwhile, deposit money across a wide range of banks in the UK and internationally, allowing them to offer competitive rates of interest that tend to track the Bank of England base rate. While an investment in a Money Market fund is not covered by the FSCS protection scheme, the funds we use are typically rated as AAA by S&P or Fitch and have a long track record of protecting investors’ cash.

Often, the paperwork required for existing clients is minimal and, even for new clients, it compares very favourably to the alternative of setting up numerous bank accounts. An added advantage is our ability to manage short-term reserves on your behalf, deploying funds to meet your specified requirements regarding credit risk and/or liquidity needs and thereby saving your Trustees or senior leaders precious time and effort.

The drawback? There is, as they say, no such thing as a free lunch and our service does incur a small fee, though attractive rates of return can still be achieved on a net of costs basis. In addition, while one of the strengths of the approach is the ability to sell any of the investments and access your money at any time, doing so could potentially create a loss, depending on the type of investment, if the price has moved adversely in the intervening time before maturity.

Take the next step

If you are interested in finding out more about how we can help with your short-term reserves, please don’t hesitate to contact your usual Investec Wealth & Investment (UK) representative or Mark O’Connor, Charities Business Development Director at mark.oconnor@investecwin.co.uk or call 020 7597 1309.