By Robert Evans, Senior Portfolio Manager at CCLA Investment Management
As a NASS-associated special school, you’re no doubt aware that the pressure on school budgets continues to increase. An April 2025 poll by the National Foundation for Educational Research (NFER) found that half of all English state secondaries were cutting staff. In addition, the poll revealed that budget cuts have forced heads to reduce school trips, divert Pupil Premium money to cover budget shortfalls, and do away with some subjects altogether. Special needs funding, too, is lagging.
Given those pressures, many bursars and finance managers are exploring opportunities to stretch schools’ resources. One often overlooked source of funds is the interest on cash reserves.
Interest rates on cash deposits were low for 15 years after the global financial crisis (2008-2009). But that has now changed. According to Tes magazine, one multi-academy trust (MAT) made £1.2m by consolidating and investing its cash balances last year, enough to fund an entire primary school.
Cash management is an increasingly important responsibility for school finance teams
These days, even modest cash balances can generate meaningful returns to support your school’s activities. Yet, as recently as April this year, the average instant access account earned less than 2%, according to the Bank of England. And at the end of last year, bank accounts worth £276bn were paying no interest at all.
Here are some of the key issues that bursars and financial managers may want to consider:
- Easy access - Banks offer higher interest rates on deposits that are locked away for fixed terms. But schools that lock away cash for a set period must ensure they can get by with their remaining cash reserves. This would avoid them being penalised by the bank, if they need to access their cash sooner.
- Safety first - The Financial Services Compensation Scheme protects balances of up to £85,000 per banking group. Beyond that, deposits and investments are unprotected.
- Customer service - According to a survey by the Civil Society Group, 92% of charitable organisations/respondents had experienced difficulties with their banks in the preceding two years. And nearly a third (32%) had found it difficult to open accounts with a new bank.
- Reputational risk - Schools increasingly look to avoid risk to their reputations, and that includes risk from the financial institutions they partner with. In recent years, some British banks have faced criticism for closing customers’ accounts without providing an explanation for serious gaps in their anti-money laundering controls and for IT outages. Other UK banks have been criticised for, e.g., making net-zero pledges while being among the largest financiers of fossil fuels, fracking and tar sand projects.
- Interest rates - Last, but not least, schools – like all investors – want to receive the highest interest rates reasonably on offer. So you could reasonably ask most banks why the interest rate on your bank account hasn’t kept pace with the Bank of England’s interest rate hikes since 2021 – its steepest rate hikes in 300 years.
There is an alternative to bank accounts
Many charity treasurers and school bursars use cash deposit funds (also known as money market funds) as an alternative to banks’ savings accounts. One of our school clients, for example, places their wage provision into a cash deposit fund at the start of every month, where they also hold their cash reserves. Despite the wage provision then being withdrawn later that same month, this approach has generated a substantial, monthly, income stream for the school.
Some of these funds were specifically designed for charities and exempt charities. They’re an efficient and low-risk way to access potentially higher returns than those that banks offer without locking your money away for a specified term. Cash deposit funds don’t place the money they hold with just one bank or building society. Instead, they place that money in deposits and other cash instruments with a wide range of carefully screened banks. As a result, a cash deposit fund’s rating – something you should ask about when researching funds – will often be higher than the credit rating of any individual bank it deals with.
In addition, cash deposit funds have institutional status and can place cash for longer than just overnight. As a result, their returns have tended to be much closer to the Bank of England’s Official Bank Rate (see figure 1) than the interest rates on bank deposits. This should be welcome news for schools that look to maximise their financial resources.
Finally, you should ask any financial institution you are considering how they manage reputational risk and how they comply with your environment, social and governance (ESG) goals.
For example, we assess all the financial institutions with which our cash funds invest based on their financial strength and their compliance with Global Standards. In addition, all the financial institutions that our cash funds use are subject to our ESG engagement framework.
Conclusion
The Bank of England’s interest rate hikes between December 2021 and August 2023 were the fastest in its 300+ year history. Banks’ deposit rates have lagged that rise, but cash deposit funds’ yields have followed it much more closely.
Several cash deposit funds were set up specifically with charities and schools in mind. So, ahead of your next financial meeting, considering a cash deposit fund could be time well spent.
This article is for information only. It does not provide financial, investment or other professional advice.
CCLA Investment Management is a UK-based asset manager that offers investment solutions for charities, churches, local authorities and individual investors.
Article references
‘Half of England’s state secondaries forced to cut staff in budget squeeze, poll finds.’ The Guardian, 10 April 2025 (www.theguardian.com/education/2025/apr/10/england-secondary-schools-staff-budget-cuts)
’MAT makes £1.2m from ‘credit sweeping’’. Tes magazine, 24 January 2025 (https://www.tes.com/magazine/news/general/mat-makes-million-from-credit-sweeping)
‘Money and Credit – April 2025’. Bank of England, 2 June 2025. (https://www.bankofengland.co.uk/statistics/money-and-credit/2025/april-2025)
’£276bn held in UK bank accounts that pay no interest’, Financial Times, 14 February 2025 (https://www.ft.com/content/78e93590-2f73-4602-86aa-2fbce4c84ad2)
’Majority of charities face banking challenges’, Charity Finance Group, 27 November 2024
Global Standards include the UN’s Global Compact Principles, the International Labour Organization’s (ILO’s) Conventions, the OECD’s Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGPs).