An essential way for charities to earn interest on their available capital is to open a business savings account, particularly as business bank accounts pay little to no interest at all. Savings accounts that allow easy access to funds can be especially vital to these institutions, many of whom need to move money quickly and efficiently, yet the rates on offer are far from charitable.
Indeed, our latest research shows that, even though business savings accounts open to charities pay better returns than bank accounts, they've become far less attractive in recent years, with easy access deals in particular facing significant rate cuts since the Bank of England reduced the base rate to 0.25% in August 2016.
Things have taken a particular downturn in the last 12 months, in which time the average interest rate on such accounts has halved to 0.18%, down from 0.37% a year ago, based on a £10,000 deposit. A similar fall can be seen for larger deposits of £100,000, where the average rate sits at 0.20%, down from 0.42% over the same period. The table below highlights the changes in more detail:
|Business savings accounts open to charities||May 2017||May 2016||May 2012|
|Average easy access rate at £10K gross||0.18%||0.37%||0.40%|
|Average easy access rate at £100K gross||0.20%||0.42%||0.48%|
|Best easy access rate at £10K gross||Skipton Building Society - 0.80%||State Bank of India - 1.49%||Hanley Economic Building Society - 2.03%|
|Best easy access rate at £100K gross||Skipton Building Society - 0.80%||State Bank of India - 1.49%||Vernon Building Society - 2.20%|
|Source: Moneyfacts.co.uk||Compiled 08/05/2017|
"Charities looking to earn interest on the cash they hold will be disappointed to find that average returns have been cut by more than half in just one year," said Rachel Springall, finance expert at Moneyfacts.co.uk. "This means that a pot of £100,000 would have lost £220 in interest over the course of 12 months when compared with last year's average return: based on an average rate of 0.42%, a balance of £100,000 would earn £420 in interest, but the same pot would only earn £200 in interest on a rate of 0.20%.
"Not only that, but the number of products available has fallen by a third over the last five years, which means it's becoming increasingly difficult for businesses to get a reasonable return on any capital they may have in an account, especially if they need instant access to the funds. Therefore, it might be time to reassess whether it's worth investing some of the balance in a fixed business account instead."
For example, the best easy access rate charities can currently find on an easy access business saver is 0.80% from Skipton Building Society, but if you're willing to invest the cash for a year without access, you could earn 1.50% on £100,000 with a one-year fixed deposit account from Union Bank of India or 1.40% with Hampshire Trust Bank.
"Past studies suggest that charities are the UK's top savers, according to the UK SME Savings Tracker 2016 from Hampshire Trust Bank, holding over two-thirds of their total funds in business savings accounts. In addition, a third of businesses are expecting to increase the cash they put aside due to the ongoing economic uncertainty created by the EU referendum, so it's more important than ever for them to get a decent return and switch quickly if they are dissatisfied with their current deal."
If you're a charity, or any other type of business, it's important to find the best business savings account rate possible. This could require losing access to your funds for a short while - check out the best business bonds to get started.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.