Understanding charity bank accounts
Charity bank accounts are designed for charities to make it easier and cheaper for charities to operate and ensure donations get to the right place. We take a close look at everything they've got to offer
Key points
A charity bank account is specifically designed for non-profit organisations
There are usually no fees to pay with a charity bank account and they can handle multiple currencies
Having a charity bank account allows a charity to register with HMRC and to claim Gift Aid on donations
Key features of charity bank accounts include access to exclusive grants, and specialised financial management tools
What is a charity bank account?
A charity bank account is an account designed for use by non-profit organisations. It helps them to manage donations and operational finances effectively. Some of the main features of charity bank accounts include:
No (or low) monthly fees
Can work with multiple currencies
Also used by community groups and social enterprises
Budgeting and accounting tools to aid transparency with donors and official bodies
By using a charity bank account, these groups can ensure more funds go directly towards their cause. This reduces money spent on bank fees.
Does my charity need its own bank account?
You will need to set up a bank account for your charity to make sure the money held within it is secure. Setting up a bank account also helps a charity to access extra funding and it’s needed to register with HMRC to set up Gift Aid donations.
This enables the charity to keep more money when it is donated, as charities can claim back the tax paid on these donations.
It is possible to use a personal bank account for a charity but this is not recommended.
Even if your charity is not officially registered yet, you may be able to open a ‘community account’ which is for those in the process of registering with the Charity Commission.
How are charity accounts different from standard accounts?
Charity bank accounts differ from standard personal or business bank accounts in several key ways:
They're designed specifically to meet the needs of charities. This ensures effective financial management while adhering to regulatory requirements
Charity accounts often feature benefits like no monthly fees and some even offer preferential interest rates. These advantages help charities maximise their funds, directing more towards their causes rather than administrative costs
Charity accounts have specific restrictions and permissions not found in standard accounts. For example, stringent rules govern who can access the account and how funds are used.
What are the key features of a charity bank account?
Charity bank accounts offer unique features tailored for non-profit organisations. Here are some key characteristics that distinguish these accounts from standard ones:
Charity accounts often have preferential interest rates and reduced fees.
Many financial institutions provide special access to grants and benefits exclusively for account holders
These typically include budgeting tools, detailed reporting systems, and customised alerts to keep track of donations and expenditures
Key features of a charity account
Interest rates and fee structures
Access to grants and exclusive benefits
Online banking and financial management tools
What are the pros and cons of charity accounts?
Advantages
Reduced fees: Many charity accounts come with the benefit of lower fees compared to standard bank accounts, which can save your organisation money
Dedicated support: These accounts often provide specialised support tailored to the needs of charities, ensuring that financial advice and assistance are always at hand
Disadvantages
Restricted usage: Some charity accounts may have limitations on how the funds can be used, which could be restrictive depending on your organisation's needs
Higher minimum balance requirements: It's common for these accounts to require a higher minimum balance than personal or regular business accounts, which might be a challenge for smaller charities
How do I open a charity bank account?
Here are the following steps to take to open a charity bank account:
Look for features like low fees, easy fund access, and strong non-profit support. You’ll also want to consider who can access the account, and the rules around withdrawing money.
These usually include your charity's registration details and trustees' proof of identity and address. You might also need a business plan or an activity statement. Each bank has specific requirements, so verify these beforehand.
Accurately complete all forms and provide any requested additional information. Prepare questions about account management and potential fees to avoid delays and efficiently set up your charity account.
How to open a charity account
Choose a bank that caters to charitable organisations
Collect the necessary documents
Follow the bank's application steps closely
There are full details of how to open a charity account in the government’s internal financial controls for charities.
Are charity accounts exempt from tax?
Charity bank accounts often enjoy tax exemptions. However, these benefits come with specific conditions.
For a charity to benefit from these exemptions, it must be officially registered. It needs recognition by the relevant tax authorities. This registration legitimises the charity. It also opens the door to various forms of tax relief.
These can significantly aid in its operations. Navigating the tax regulations for charity accounts requires careful attention.
The rules can be complex and failing to comply can result in losing these valuable tax benefits.
Are charity accounts covered by FSCS?
Charity bank accounts, similar to personal or business accounts, are often protected by the Financial Services Compensation Scheme (FSCS). This scheme is essential in safeguarding funds deposited in these accounts up to a specific limit.
Notably, the FSCS covers up to £85,000 per eligible depositor under each banking licence. For charities, this means charities receive compensation up to the stated limit if their bank fails.
Understanding the importance of FSCS protection for charity funds is crucial. Charities handle funds vital for their humanitarian or social missions. Having this financial safety net allows them to operate with more security and stability.
To ensure a charity account is eligible for FSCS protection, it is essential to verify that the bank is UK-regulated. The charity must also check that their account is correctly registered and meets all FSCS conditions.
This might involve confirming the account type and ensuring the charity qualifies under FSCS rules. Regular review of these details can help maintain eligibility for this crucial protection.
