Banking For Charities
Banking forcharitiesInformation for people whomanage the financial affairs of acharity or voluntary organisationINSPIRINGFINANCIALLEADERSHIP
WelcomeThis leaflet is for people who manage the financial affairsof a charity or voluntary organisation. Whether youare looking after the books of a local sports club or anorganisation that supports the elderly – or something elseentirely – this guide aims to help you explore the accountson offer and decide on the best way to manage yourorganisation’s finances.The guide lays out your responsibilities as a person whomanages a charity’s/voluntary organisation’s finances,helps you ask the right questions in order to establish yourcharity’s banking needs, and answers many frequentlyasked questions. The guide is aimed towards thoseinvolved with the financial affairs of smaller charities; butothers may find it useful, too.We hope this guide helps trustees, managers and anyonewho has financial responsibilities to successfully navigatethe banking landscape and, in doing so, significantlyimprove the management of their charity’s or voluntaryorganisation’s finances.What are your responsibilities?Trustees are responsible for the general control andmanagement of their charity, and ensuring it is solvent andwell run. As part of this responsibility, trustees must make surethe organisation’s funds are managed properly – and thereforemust ensure banking arrangements are suitable for thecharity’s needs. Trustees must remain ultimately responsiblefor running the charity, but they can delegate powers to others– including management of the charity’s finances.If you are a trustee or have been delegated responsibilityfor a charity’s financial affairs, you must ensure that youexercise care and skill when making decisions.You must also: consider how suitable any account is for your organisation; consider how you should best manage any risksassociated with banking and take advice where youthink appropriate; and update your bank as early as possible on any relevantchanges in your charity/voluntary organisation.Where necessary, you should review your bankingarrangements from time to time. It is important you canjustify your decisions and the choices you make. So longas you can demonstrate that you have considered therelevant issues and reached a reasonable decision, youare unlikely to be criticised for your actions.Banking for charities 3
First things first: consider your charity’s needsYou should consider your charity’s overall financial positionand what you are looking for from a bank before decidingwhich bank(s) to approach. You may just need somewhere tokeep your charity’s cash: a straightforward current accountwith instant access. Or you may want a range of differentaccounts and services, for example a current account, savingsaccount, credit facilities and longer term investment options.The following questions will help you establish the type ofbank you wish to bank with, the type of account you need,and the services you require: What does the cash flow of your charity look like overthe next 12 months (or longer)? Things to considerregarding cash flow include the likelihood of youhaving excess cash for part of the year (thereforeyou might need to know about short term investmentopportunities) or needing borrowing facilities - orperhaps both. Keep in mind any requirements laid outin your charity’s reserves policy. How do you receive your income? In cash, cheque orelectronic payments? How will you authorise payments – will you requiredual authorisation? Do you need a company credit card(s)? Do banks’ ethical policies matter to your charity? Do you need the services of a bank with localbranches (e.g. for banking funds)? Do the local bankbranches need to be easily accessible (e.g. cater forwheelchairs)? Does your charity operate abroad? Will it need tomake foreign currency transactions? Will you need a number of bank accounts or just one?Exploring the accounts on offerAll charities need a deposit or current account to holdcash for the day-to-day running of the organisation. Itmay seem daunting that different banks offer accountswith different names like societies’ accounts, trustees’accounts, charities’ accounts, small business accounts,and so on. However, all of these accounts are similar toa current account and offer functions such as a place tokeep your money and a cheque book.What makes these accounts different from each other isthat banks have developed packages of options whichthey hope will suit your organisation’s needs and willencourage you to bank with them. Most banks list the4British Bankers’ Association
accounts and services available on their websites, andthere are also a number of comparison websites whichoutline the different options available to you.Many charities use business bank accounts. In somecases banks stipulate that larger charities (by turnover) orthose with certain organisational forms (e.g. a charitablecompany limited by guarantee) have to open a businessaccount rather than charity account.Make sure you shop around. There are many options toconsider when selecting an account that works best foryour charity. If a number of banks look suitable or you havequestions, speak to the banks. Ask staff in the branchesor contact the bank’s specialist charity teams. It is alsoimportant to document your research and record theanswers and results of enquiries made to various banksso they can be properly compared and discussed. Ensureyou satisfy yourself and your fellow trustees or committeemembers that you have explored all the options out there.Asking the right questionsThere are many things to consider when it comes to findinga bank account that best suits the needs of your charity. Tohelp, we have produced a range of frequently asked questions(see pp.8-13), covering everything from overdrafts and interestrates to account signatories and ethical considerations.Early engagement with your bank will help. Some banksmay offer a specialist relationship or regional managerto assist charities with their account, however these arenot always available for smaller organisations. Ask yourbank if this service is available.If this service is available, you can make use of yourrelationship manager’s knowledge and banking experience.It may also be helpful to take some time to explain thebackground to your charity and develop a rapport withyour relationship manager so that they understand yourrequirements.Relationship managers can help you: manage your cashflow; borrow and save money; and find out about any additional services the bank can offer.Your relationship manager should provide all agreements andnegotiations around fees, charges and future arrangementsin writing, however minor they may seem. Make sure youhave received these documents and file them carefullybecause you may need to refer to them in the future.Banking for charities 5
If your bank cannot offer the service of a relationshipmanager, find out who in the bank is best placed toanswer any queries you may have.Making sure your internal financial controlsare robustWhen making decisions about banking arrangements,charities should always consider the financial controls thatshould be put in place within their own organisation toprotect against fraud and theft. Internal financial controlsare essential checks and procedures which help trusteesmeet their legal duties to safeguard the charity’s assetsand reduce the risk of loss.The Charity Commission has produced a guide calledInternal Financial Controls for Charities, which outlines anumber of basic banking controls that charities shouldconsider x) but the list below list provides a brief outline ofcontrols that should be in place.Charities should ensure: cheques and cash are banked regularly and promptly; cheque books are kept in a safe place; nobody is pre-signing blank cheques; there is a clear policy for the use of payments cards, thecriteria for their issue, spending limits and security; dual authorisation arrangements are put in place ifmaking BACS and other payments; only specifically authorised individuals are able to setup arrangements to make payments by standing order,direct debit or BACS. This authority should be limitedto a small number of people with a list of authorisedindividuals drawn up and retained; and if using electronic banking, passwords are changedperiodically and all PCs are kept up to date withanti-virus, spyware and firewall software.Changing your bankYou should regularly review your banking arrangements toensure that you are getting a competitive deal that is bestsuited to your organisation. If you are not happy with theservice your bank is providing or think you could receivea better service elsewhere, you may want to considerchanging your bank.Account switching is becoming easier and faster as bankswish to encourage customers to switch to them. You may6British Bankers’ Association
wish to consider shopping around for a new bank and enquirewhat their procedure and processes are for switching.What to do if you have a complaint aboutyour bankAll banks have procedures for handling complaints, andcustomer-facing staff should be able to tell you whatthese are if the need arises. When opening your account,the bank should tell you where you can find details of itscomplaints handling procedures.If a bank is unable to resolve your complaint to yoursatisfaction by the close of three business days followingreceipt of the complaint, the bank should provide youwith a written acknowledgement that the complaint isbeing considered.It is the bank’s responsibility to keep you informed aboutthe progress of the complaint and within eight weeks youshould receive a final response or an explanation why afinal response has not yet been reached.If you are not satisfied with the bank’s handling of thecomplaint you can refer it to the Financial OmbudsmanService, which is a free-of-charge adjudicator for allcomplaints within the financial services industry.You can find out more about this organisation at:www.financial-ombudsman.org.ukFinancial protection for depositsThe Financial Services Compensation Scheme (FSCS)is the compensation fund of last resort for customers ofauthorised financial services firms. If a bank becomesinsolvent or ceases trading the FSCS is able to paycompensation to its customers.For the latest information, see: www.fscs.org.ukThe Charity Commission has also published guidanceabout the scheme for charities:www.charitycommission.gov.ukGetting professional adviceThe financial authorities supervise and enforce consistentstandards for people who are allowed to give financialadvice. Bank branch staff are able to help guide youtowards banking products that may suit your needs, butthey are not usually Independent Financial Advisers (IFAs)and therefore cannot advise you on what decisions to takeor what is available from other banks.Banking for charities 7
An IFA is a professional who provides financial services adviceto individuals, businesses and other groups. They can provideinvestment, insurance and mortgage advice and can also helpyou structure your investment portfolio – for example helpingyou maintain your desired balance of investment income,capital gains, and acceptable level of risk.Some banks employ IFAs who operate separatelyfrom branch staff. These advisers will not promote theproducts of any single provider and can deliver expertisein research and product selection. Financial advisers mayoffer their services on a fee or commission basis for thevarious financial products that they broker.Frequently asked questionsOPENING AN ACCOUNTWhat types of payment services will I need?Different bank accounts provide access to differentpayment services and ways of accessing money. Whenlooking for an account consider the main payment servicesyou will need such as: debit card, cheque book, directdebits, standing orders, online and telephone access.What additional payment services are offeredsuch as BACS, CHAPS, direct debit and bulkpayments to pay suppliers or wages and salaries?Additional payment services are offered by most banks.Make sure you have a good understanding of how theseservices work and how to set them up appropriately foryour organisation’s needs. Talk to your bank if you needany clarification and ensure you check whether there is acharge to use these services.To comply with anti-money laundering laws, banks needto undertake due diligence. To enable a charity/voluntaryorganisation to make payments to other clients, domestic orforeign, you should keep in contact with your bank to ensurethey understand and know how your business operates.Is a minimum amount required to openan account?Some banks require that a certain amount is placed intothe account on opening. This is normally not substantial,but it is worth checking that you will be able to depositthat amount when the account is opened.8British Bankers’ Association
What ID documentation do I need in order toopen an account?The BBA’s Proving Your Identity leaflet identity) lays out types ofdocuments most banks and building societies will accept asforms of identity. Common types of identification include: PassportDriving licenceUtility billsBirth certificate.However, some banks and building societies may accept somedocuments that others won’t.Banks are required by regulation to ‘know their customers’and protect both their customers and stakeholders from fraud,money laundering, reputational risk and other aspects offinancial crime. To fulfil this requirement, the documents thateach bank will accept or require to see can often change. Youshould contact the bank or building society directly about whatthey will or will not accept from you as proof of identity.Banks or building societies usually want to see two separateforms of identification – one document to prove who you areand another document to confirm where you live.You will need to provide original documents – photocopiesare not usually accepted. You can read Proving YourIdentity via the link on p.16.Some banks have streamlined the verification process sothat you do not need to supply identity documentation – theywill do background checks once an application form hasbeen submitted. Speak to your bank to see what is required.If you are opening a charity account, banks generallyrequire some proof of charity identification – a charityregistration or tax reference number, for example. Again,speak to your bank and ask what requirements they have.Are there any reasons why a bank will not allowme to open an account?Banks have the legal right to choose who they do businesswith. Many banks will not open an account for individuals whoare undischarged bankrupts and no banks provide accountsfor individuals with a conviction for fraud. You may also haveproblems if you or your organisation are are currently in a largeamount of debt with a bank or plan to make transactionswith high money laundering risk jurisdictions. Disclosure of allrelevant information will allow the bank to provide you with thecorrect advice for the bank account opening process.Banking for charities 9
Are there any monthly bank charges foroperating my account?A number of banks offer free banking for smaller charities,making no charges for routine matters such as paying in,drawing cheques and holding cash. However some bankaccounts have a charge for their use which covers thecost of running the account and the additional services.This usually involves a fixed monthly charge, howeversome banks may offer a cost per transaction or a mixtureof both. Ask your bank about their charging structure andconsider what types of transaction you process most – forexample, do you mainly pay in small cheques as opposedto large direct credits such as grants? Additionally, it isworth checking whether the bank offers specialist rates foryour type of organisation and, if so, how these compare toregular charges.Be aware that bank charges may change, but if your bankplans to alter your arrangement then it will notify you inadvance. Banks will be able to go through the variousoptions available to you and make recommendationsbased on your charity’s individual circumstances. Makesure you understand what is included with the accountand be clear about what incurs an additional charge.What is the rate of interest and when is it paid(monthly or annually)?If you are likely to be holding large amounts of cash, or arelooking to save money, you need to consider the interestrate available on your account. You should always comparerates across the market to check you are happy with whatis on offer at your bank. Rather than constantly seeking thehighest rates you may prefer to deposit cash in a bank thathas consistently good rates.As a charity, you can also receive tax relief on bank orbuilding society interest. Speak to your bank and enquirewhat documentation you need to provide to ensureinterest is paid gross of tax. In many cases it shouldbe sufficient to show proof that HMRC recognises yourorganisation as a charity for tax purposes.Contact your bank if you think you have already been paidinterest with tax deducted – they should be able to reviewthe situation and make sure everything is correct.Fixed term and deposit accounts are on offer frommany banks. These can provide a higher rate of interestbut come with restrictions on access to the account.Charities with larger cash deposits may want to consider10 British Bankers’ Association
this type of account; however it is important to thinkcarefully about what your access requirements are.How do I consider ethical or socially responsiblebanking?An increasing number of charities have an ethical investmentpolicy in place that means that they would choose not tobank with a company that does business with, for example,the tobacco, arms or gaming industries - depending on theircharitable purposes. If ethical or charitable considerationshave an influence over your choice of bank, make sure tocompare banks’ policies and projects and check out theirwebsites for details.ACCOUNT ACCESSIBILITYHow many authorised individuals can I have onthe account?The Charity Commission recommends that, wherepractical, bank mandates should require two signatories– one being a trustee. However, it accepts thatarrangements should be practical and proportionate, andfor some charities this arrangement may not be feasible.You may, therefore, want to consider nominating more thanone person who can authorise withdrawals (such as cheques).Some banks allow several signatories on an account and youneed to consider how you want cheques and payments to besigned for (e.g. one of a number of trustees, or at least twoor more trustees for each transaction). Speak to your localbank to discuss what they offer. If there are likely to be severalsignatories on your account, make sure you communicatewith each other exactly when you plan to withdraw funds toavoid accidently going overdrawn and incurring a bank fee.Look at whether any conditions apply when withdrawingfunds. For example, some branches may need writtennotification in advance and proof of ID for individuals towithdraw cash.If you choose to use online banking, the CharityCommission recommends using a dual authorisationsystem (there can be a charge for this service).How easy it is to switch authorised signatorieson the account?Charity personnel change frequently so you may want toask your bank what the processes are for changing theauthorised signatories on your charity’s account.Banking for charities 11
It should be straightforward to change signatories subject tothe usual checks and requirements for ID (see the ‘Opening abank account’ section on p.9 for further information).Regular contact with your bank is beneficial and it isimportant that you notify your bank as soon as there will bea likely change in signatories. This will
towards banking products that may suit your needs, but they are not usually Independent Financial Advisers (IFAs) and therefore cannot advise you on what decisions to take or what is available from other banks. 8 British Bankers’ Association An IFA is a professional who provides financial services advice to individuals, businesses and other groups. They can provide investment, insurance and .
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