With the demise of Airdrie Savings Bank - where now for cash deposits?
Heather Lamont says that safety must come first for charities considering where to invest cash deposits
A number of Scottish charities will regret the passing of the Airdrie Savings Bank, the last of Britain’s independent savings banks and one with a traditional ethos that appealed to many voluntary organisations.
And on a practical level, any charities with deposits there will now be asking themselves where to put their cash after the bank closes.
As with all cash holdings, your top priority must be the security of the institution you’re lending to – the charity must be confident its cash is safe and accessible should it be needed for spending.
If your deposits at any one bank are within the limit set by the Financial Services Compensation Scheme (FSCS), you should still have plenty of options as you’ll be covered by the savings guarantee which protects depositors with any UK-licensed bank. From 30 January 2017 the limit will be £85,000 (currently £75,000).
If you have more than that amount, placing it with any one bank requires a bit of due diligence as your cash could be at risk if the bank got into trouble. Gone are the days when depositors could rely on the taxpayer to bail out any failing institution, as some savers in Cyprus and the Netherlands have already found to their cost. The new bail in regime in the UK would apply the same principle here.
If you have more than £85,000, placing it with any one bank requires a bit of due diligence as your cash could be at risk if the bank got into trouble
A less stressful approach could be to use a pooled cash fund, where a specialist manager places deposits with multiple banks on behalf of many individual savers. Many third sector organisations use a common deposit fund, a specialist fund which is designed for and only available to charities.
Because they are managing large volumes of cash, and can place some of this on longer term deposit while still keeping plenty of cash on hand to allow individual savers to withdraw funds without notice, these funds may offer a higher rate of interest than you would get from your regular bank.
However the main attractions of a pooled fund should be its security and convenience for your organisation. Different funds take different approaches, so it’s important to know what you’re buying. Some funds (often called cash plus funds or similar) offer slightly higher income in return for taking a bit of risk with how they invest your money and perhaps giving you less flexibility about withdrawing cash.
Others place top priority on the security and liquidity of their depositors’ cash, and this will often align well with the risk-averse preferences of charity trustees. You can get a good idea of how a particular fund deals with risk by looking at its credit rating. For example a fund with an AAAf/S1 rating would have the highest possible credit quality; one rated AAf/S2 would accept more risk.
Heather Lamont is a client investment director at CCLA. She is presenting two workshops at The Gathering 2017: ‘Introduction to Charity Investments’ and ‘The Naked Treasurer’