Many small charities use deposit accounts with mainstream banks and building societies rather than smaller institutions that offer higher interest rates, according to a survey by a charitable trust.
Four Acre Trust, which makes grants of about £1.5m a year to charities with incomes below £10m, asked more than 200 organisations it had supported where they held their deposit accounts. It received 80 responses.
A third of their deposits was either with the third sector investment house CCLA, which offers 0.75 per cent interest, or the Charities Aid Foundation’s CAF Bank, which offers 0.2 per cent. The rest was in a mixture of bank and building society accounts.
Four Acre's report on the survey said both CCLA and CAF paid lower rates than were available elsewhere. The best rate achieved by respondents to the survey was 2.25 per cent for one month notice accounts with the Monmouthshire Building Society.
"CCLA and CAF may be overselling their charity status, and market their products aggressively," says the report. "In our survey, the potential 'lost interest' was £96,000 - the difference between the rate received and a possible return of 2.25 per cent with the Monmouthshire Building Society."
John Bothamley, trustee and founder of Four Acre, which is spending out its endowment, said its trustees conducted the survey because they were concerned that many charities they worked with spent little time thinking about the best place for their cash. Small unincorporated charities often opened a current account, he said, and then held their reserves in an associated savings account without checking whether it offered the best rate.
He also said the trustees were worried that too much trust was placed in large charitable organisations."What irritated us was that CAF in particular leaned on its charity status, and offered a ‘gold account’ that sounded like a premium account but paid very low rates indeed," he said.
A spokesman for CAF said that the bank offered a range of saving and investment products with varying notice periods and terms. "This analysis looks only at instant access accounts," he said. "As a bank owned by a charity, with a mission focused on helping charities to make a better society, we make decisions about which banks we lend money to on the inter-bank market with an eye to balance the return achievable against the risk being taken with the safety of charities’ deposits."
Michael Quicke, chief executive of CCLA, said the report was "not comparing apples with apples" and had a simplistic outlook. "This report has not looked at security and liquidity," he said. "It’s not sensible to be telling people to put their money in a small institution that has no credit rating - particularly given the memory of everything that’s gone wrong in the banking industry so recently."
Bothamley said the requirement to hold money in a fund with a high credit rating was less important for small organisations. The Financial Services Compensation Scheme would usually protect small charities if they held money with a financial institution that went out of business, he said.