Making the Most of Your School or Academy’s Money

For many trust finance leads, deciding how and where to place a trust’s funds can feel daunting. In this article, Ian Buss breaks down some of the important considerations when handling your school’s money

Questions about safety, approval from the Department for Education (DfE), and the complexity of managing multiple accounts often leads trusts to keep all their money with a single bank – sometimes at the cost of better interest and reduced fees.

The good news: back in June, the DfE issued clear guidance that not only reassures trusts but actively encourages them to explore wider banking options. With interest rates at attractive levels, there is every reason for trusts to review their deposit strategies and investment policies.

DfE Guidance: Clear, Simple and Supportive

In June, the DfE confirmed that trusts should consider a broader range of banking products and providers. Their intention is twofold: 1. To help trusts reduce the cost of existing banking arrangements and 2. To enable them to earn higher interest on reserves, surplus cash holdings, and day-to-day funds.

The guidance is refreshingly straightforward. Deposits should:

• Be placed with a UK FCA-regulated institution
• Not place capital at risk.

This means standard bank deposits – whether instant access, notice or fixed term – should be explored. However, products such as investment funds, unit trusts, bonds and equities usually involve capital risk and therefore fall outside the DfE’s recommended boundaries for academy trusts so professional advice is recommended before making a decision.

Overcoming Historical Hesitations

Many schools have historically kept their deposits with their existing current-account provider. The reasons are familiar:

• The perceived administrative burden of opening additional accounts
• Uncertainty about which banks are safe
• Confusion about what is permitted by the DfE
• Concerns around liquidity and access to funds

Events during the 2007–2008 financial crisis, such as the rescue of Northern Rock, RBS and HBOS, still weigh heavily on some trustees’ minds. However, the banking landscape has changed significantly since then. UK banking regulations are now far more robust, with tighter capital requirements, stronger stress-testing and a regulatory framework designed to withstand major economic shocks.

A New Interest-Rate Environment

Since the start of the expansion of the academy sector in 2010, interest rates remained at historic lows for many years. In that environment, the effort required to open additional accounts often outweighed the financial return. But the last few years have changed the picture dramatically. Higher interest rates now offer trusts meaningful benefits, even on relatively short-term cash. With the DfE’s encouragement and competitive deposit rates available across the market, trusts can now achieve substantial returns with low effort and no increased risk – provided their strategy and policies are up to date.

Investment Policies: Often Missing, Often Outdated

Having worked with over 300 trusts on deposit strategies and investment policies, one trend is clear: most trusts either have outdated policies or no policy at all. Given past low interest rates, this is understandable. But now is the ideal moment to create or refresh your investment policy and deposit strategy.

Top Tips for a Strong Investment Policy

A good investment policy should be:

• Clear and not open to interpretation
• Specific
• Workable in practice
• Compliant with DfE guidelines

Some existing policies include vague statements such as “the trust will only deposit with a strong bank.” While the intention is good, it leaves too much open to interpretation. A stronger, clearer approach would be: The Trust can invest surplus funds in a mixture of interest-bearing accounts (where the capital is not placed at risk) with banks or financial institutions that are registered and regulated by the Financial Conduct Authority (FCA) in the UK. This gives finance teams precise criteria to follow, removing ambiguity.

Setting Sensible Limits

Some policies attempt to cap deposits at the £120,000 FSCS limit for eligible entities. While theoretically protective, this is unmanageable for trusts holding cash into a million pounds plus. Instead, consider a practical limit – e.g., no more than £2 million per institution – which balances risk with operational feasibility. Remember: a limit is a ceiling, not a target.

Building a Practical Deposit Strategy

Academy trusts are in a fortunate position with cash flow: their income and expenditure patterns are highly predictable. Most receive their primary funding (GAG) on the first of each month, and the largest outgoing – net salaries – typically falls toward the month-end. This means:

• Trust current-account balances should naturally be lowest at month-end
• Surplus funds can be placed on deposit for most of each month.

How to Start

1.Plot your month-end balances for the last 12 months. This reveals your minimum cash levels held and how much could have been on deposit.

2. Keep a portion in an easy-access account. This ensures funds can be returned to your main account within a few days if needed.
3. Consider mixing instant-access, notice and term deposits. Instant access can earn above 3%, while term and notice accounts often offer around 4%. As an example, at the time of writing, a trust with £1 million placed across suitable deposit accounts could expect to earn £30,000–£40,000 in annual interest. Even though rates have softened slightly since the summer of 2024, they remain strong enough to offer significant value to schools and trusts.

Next Steps?

With clear DfE encouragement, stronger banking regulation and good interest rates, now is the ideal moment for trusts to revisit both their deposit strategy and investment policy. If you would like a complimentary draft investment policy or deposit strategy guide, feel free to get in touch – I’ll be happy to share them.