Finance News: Bank charge focus hits income

Charities' obsession with securing low bank charges could be damaging them financially, according to research by CAF Bank.

Their choice of bank is overwhelmingly determined by the level of charges rather than the interest rates on offer.

The survey of a mix of large, medium-sized and small charities found that 71 per cent "were only interested in bank charges" and did not attempt to balance these against the interest rates on offer.

CAF Bank head of banking services Peter Mitchell claimed that this was evident across the board, regardless of the charity's size.

But he warned that the sector's narrow thinking may be hitting organisations in the pocket.

"By focusing almost solely on low bank charges, charities may be losing out on the opportunity to generate extra income when interest rates rise," he said. "Charities may also be neglecting to shop around for banking services that offer higher interest rates on their day-to-day deposits."

Mark Davies, charities manager at Unity Trust Bank, said the research findings had to be taken in the context of the current level of interest rates. "Interest rates are bloody low, and some people think it ain't worth bothering," he said.

He conceded that many charities have a "blinkered vision" when it comes to large charges, but added that, when Unity Trust managers met charities to discuss banking options, they frequently accepted a fixed annual fee in return for a higher rate of return.

The CAF Bank report also found a growing trend for charities to use cash deposits to fund projects, but there are no hard figures. The bank says it is concerned about this development and will be monitoring it.

Tracey Reddings, executive director of banking and investment services at the Charities Aid Foundation, said the stock market fall had meant charities had been forced to raid their bank accounts to fund capital projects.

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