In the current funding climate, every pound matters. While much focus is placed on cost control and procurement efficiencies, some academy trusts continue to overlook a simple but impactful opportunity: maximising investment income on cash deposits.

In recent years, many academy trusts have taken proactive steps to review their treasury arrangements and, as a result, have benefited significantly from the higher interest rate environment. By actively moving surplus cash from low- or non-interest-bearing current accounts into notice accounts, fixed-term deposits or diversified cash platforms, these trusts have generated substantial additional investment income. This income has been achieved without moving beyond low-risk deposit arrangements, simply through structured cashflow forecasting, regular rate benchmarking, and clear trustee oversight. The experience of these trusts demonstrates that when approached strategically treasury management can make a meaningful contribution.

Other trusts have potentially missed out on material income simply because their banking arrangements have not been reviewed. Whilst Bank of England interest rates have fallen in recent years from the 5.25% high of 2023, trusts holding significant cash balances can still generate substantial interest.

The DfE has recently reinforced the importance of proactive treasury management through its banking comparison tool and related guidance, encouraging schools and trusts to actively review whether their funds are generating appropriate returns.

Why this matters now

Academy trusts often hold substantial cash balances due to:

  • GAG funding received in advance
  • capital grants pending expenditure
  • restricted and unrestricted reserves
  • timing differences between income and payroll/creditor payments.

Even relatively modest improvements in interest rates can translate into meaningful additional income.

For example:

  • A trust holding £2m in cash earning 1% receives £20,000 per annum.
  • The same balance at 4% generates £80,000 per annum.

That £60,000 difference could fund:

  • additional teaching capacity
  • targeted interventions
  • curriculum enhancements
  • investment in estates or IT.

In a sector where margins are tight, failing to optimise deposit income is effectively leaving money unclaimed.

Trustees’ fiduciary responsibilities

Whilst day-to-day management of the cash balances will rightly fall to the CFO and finance staff, trustees have a legal duty to:

  • act in the best interests of the trust
  • safeguard public funds
  • ensure financial resources are used effectively.

Holding cash in low- or non-interest-bearing accounts without periodic review may not demonstrate appropriate stewardship - particularly where better, low-risk alternatives are available.

The DfE’s message is clear: trusts should review whether their current banking arrangements are working as hard as they could for pupils.

This may involve:

  • opening a savings account with an existing bank
  • shopping around using the DfE’s free banking comparison tool
  • using cash savings platforms such as Insignis (recently DfE-approved) to spread funds across multiple accounts.

When using multiple providers, trustees should remain mindful of the limits under the Financial Services Compensation Scheme (FSCS), ensuring protection thresholds are not exceeded.

Risk, liquidity and prudence

Maximising return does not mean taking inappropriate risk. Academy trusts are not investment vehicles, so their objectives should prioritise:

  1. security of capital
  2. liquidity
  3. yield (subject to 1 and 2)

Short-term notice accounts, fixed-term deposits aligned with cashflow forecasts, and diversified cash platforms can often improve yield without materially increasing risk.

The importance of a formal investment policy

Many trusts underestimate that simply holding cash constitutes making investment decisions.

The Academies Accounts Direction (AAD) requires trusts to include an investment policy in  their Trustees’ Report, which reflects the fact that academy trusts are stewards of public money. Even cash deposits fall within the scope of investment activity.

A robust investment policy should cover:

  • objectives (security, liquidity, yield)
  • permitted instruments (e.g., bank deposits, notice accounts, cash platforms)
  • maximum exposure per institution
  • FSCS limits
  • delegated authority and reporting arrangements
  • ethical or ESG considerations (if applicable)
  • monitoring and review frequency.

Without a formal policy, trusts risk:

  • inconsistent decision-making
  • over-concentration with a single bank
  • inadequate oversight
  • governance challenge during audit

Practical steps for academy trusts

  1. Review current interest rates on all accounts.
  2. Compare alternatives using the DfE’s banking comparison tool.
  3. Assess whether balances could be split to maximise FSCS protection.
  4. Update (or implement) an investment policy.
  5. Ensure trustees receive periodic treasury reports.
  6. Include clear disclosure in the Trustees’ Report as required by the AAD.

Final thought: every pound for pupils

Maximising investment income is about responsible stewardship. A well-governed approach to cash management can generate meaningful additional income with minimal additional risk. Trustees should ask a simple question:

Is our cash working as hard as it should be for our pupils?

If the answer is uncertain, now is the time to review.

The next step

For further information on how we can support your academy trust, please contact Allan Hickie, or your usual UHY academy adviser.

 

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