One year on from the failure of Lehman Brothers, the subsequent collapse of the Icelandic banks and the devastating impact this has had on charities with funds held in those banks, we can reflect on the longer-term implications of the financial crisis and assess the risks it has created for charities.
CAF Bank and other charity specialist banks all saw an increase in the number of charities placing money with them in the period after the banking collapse. Before the crisis, charities were concerned mainly with rates of return on their money. But security soon became the main factor; no charity wanted to see its reserves lost in another banking failure.
It has been a tumultuous 12 months in the banking sector and the interest rate is still at a historic low. With the impact this is having on income from cash reserves, charities should be looking not only at safety of deposits and interest rates but at bank charges and customer service as the key elements in choosing a banking or savings account. It's time to assess the real 'net cost' of bank accounts.
According to a recent survey by CAF Bank, a quarter of charities either never review their banking charges or review them less than once a year. The average current account for a small to medium-sized charity, held in a high-street bank with a cash balance of £15,000 a year, could cost up to £580 a year in banking charges and offer little or no interest to offset this.
In these difficult times, charities need as much help as they can get. By adopting a 'net cost' assessment across four areas - safety, interest, commission charges and service - charities can gain a better understanding of the impact of paying bank charges with no return to offset them.
Are charities getting value for money and good service for the fees they are paying? This is particularly relevant as charities struggle through the challenges facing them at this point in the economic cycle.
Local access through a network of branches is understandably important for most charities, but smaller, sector-focused banks often provide a service that is far more personal and understanding of the needs of the voluntary sector.
The bottom line is that there are alternatives to the high street. Charities can still get what is effectively free banking, combined with excellent customer service and safety of deposits, just by looking beyond the big names. In these financially difficult times, with interest rates looking set to stay low for some months to come, it's a saving charities would be unwise to ignore.