Having provided finance and CFO support to Academy Trusts throughout Hertfordshire, it has come to light that very few Trusts maximise their financial resources through strategic investments. By ‘Taking an Interest in Interest,’ schools can generate additional income to support their educational goals. Here’s a comprehensive guide to cash solutions and investment strategies tailored for Academy Trusts.
Cash solutions for Academy Trusts
There are various options available to Academy Trusts for managing surplus funds:
- Overnight sweeping accounts: These accounts automatically transfer excess funds to an interest-bearing account overnight.
- Instant/easy access accounts: Provide immediate access to funds while earning interest.
- Notice accounts: Require a notice period (typically 30 to 100+ days) before funds can be accessed, offering higher interest rates.
- Fixed term deposits: Lock funds for a fixed period (typically 1-12 months) with guaranteed interest rates.
Additionally, online platforms specifically aimed at the education sector offer all these options in one place. While they charge a small platform fee, they often provide competitive interest rates.
Investment maturity dates
Investment maturity dates should not exceed 12 months unless funds are earmarked for a specific future project with no risk of requiring access in the meantime. This ensures liquidity and minimizes risk.
Creating an investment policy
Creating a robust investment policy is crucial. This policy should be approved by your Resources Committee and include the following elements:
- Scope: Define the scope of investing funds surplus to day-to-day operational requirements.
- Responsibility: Determine if Trustees will delegate the responsibility of managing and implementing this policy to the CFO/COO.
- Objectives: Identify the level of funds that can be placed on deposit to generate additional interest income for the Trust.
- Counterparty risk: Ensure deposits are made with institutions holding a UK banking license regulated by the FCA. Diversify holdings across at least two institutions, being aware of the £85k FSCS protection limit.
- Counterparty restrictions: Only invest in institutions with an Investment Grade “good” or better credit rating. Set a maximum deposit limit.
- Assessing liquidity needs: Maintain sufficient balances across accounts with short-term access to meet financial commitments. Review cash flow forecasts monthly.
- Investment products: Invest surplus funds in a mixture of interest-bearing accounts.
- Investment decisions: The CFO/COO should produce reliable cash flow forecasts as a basis for decision-making.
- Monitoring and reporting: The CFO/COO should report investments held and performance against objectives to the Resources/Risk Committee.
By following these guidelines, Academy Trusts can effectively manage their surplus funds, generate additional income, and support their educational mission. Taking an interest in interest is not just about earning money; it's about strategically positioning your Trust for long-term financial health and success.
Monitoring investment performance is crucial to ensure that your investments are meeting their objectives and to make informed decisions. Here are some steps to effectively monitor investment performance:
1. Regular reporting
Ensure that the CFO/COO provides regular reports on the investments held. These reports should include:
- Current value: The current value of each investment.
- Interest earned: The amount of interest earned to date.
- Maturity dates: Upcoming maturity dates for fixed-term deposits.
- Performance against objectives: Comparison of actual performance against the set objectives.
2. Regular reviews
Conduct regular reviews of the investment strategy and performance:
- Monthly reviews: review cash flow forecasts and ensure that the investments align with the Trust’s liquidity needs.
- Quarterly reviews: assess the overall performance of the investment portfolio and adjust, as necessary.
- Annual reviews: conduct a comprehensive review of the investment policy and performance and update the policy if needed.
3. Risk assessment
Regularly assess the risk associated with your investments:
- Credit Ratings: Monitor the credit ratings of the institutions where funds are deposited.
- Diversification: Ensure that funds are diversified across multiple institutions to mitigate risk.
- Market Conditions: Stay informed about market conditions that could impact the performance of your investments.
4. Compliance and reporting
Ensure compliance with the investment policy and regulatory requirements:
- Internal audits: Conduct internal audits to verify that investments are managed in accordance with the policy.
- Reporting to the resources/risk committee: Regularly report investment performance to the Resources/Risk Committee for oversight and guidance.
By following these steps, you can effectively monitor the performance of your investments, ensuring they contribute positively to the financial health of your Academy Trust.
Working example
By providing CFO support to an Academy Trust that was fortunate to hold a substantial cash balance, but was not earning any interest, a plan was established to utilise the earning potential. With guidance, and collaboration with Education Banking, an online platform was created with Insignis. Education Banking provided a draft Investment Policy, which was customised to meet the Trusts specific needs.
Insignis charges a 0.2% platform fee, and the Trust retains all earned interest. By investing £510,000, the Trust is projected to earn approximately £21,000 this year, simply by adopting a different savings strategy.
If you have any specific questions or need further details, please contact academytrusts@hfleducation.org.
