International Day of Education: how to fund that new teacher 

Jan 24th 2024

At Insignis Cash, we’re proud to mark International Day of Education and are delighted that we have a variety of educational institutions or trusts among our clients. 

If you’re running a school or trust, consider for a moment how much it costs to hire a new teacher. Schools across the UK are continually doing that kind of mental calculation: they all want smaller class sizes, which benefit both pupils and staff, and they all have subsequent ambitions to progress up the league tables. The same principle applies to purchasing new equipment, facility repairs, educational trips and so on. 

A coherent treasury policy can be the difference between hiring that new teacher or not. So how can schools and trusts make that step? 

The potential of interest 

Your cash reserves can generate extra funds for your school or trust, just by holding them in the right places. Let’s say you have a reserve fund of £2 million. A 5%* interest rate on that fund earns an extra £100,000. This could easily cover the appointment of at least one teacher, or a raft of important educational materials. In those terms, it seems like an obvious thing to do. So why isn’t every school doing it? 

One possible answer is that we’ve seen an extended period of very low interest rates since the 2008 financial crash. However, this climate has shifted in the last few years – with rates rising consistently through 2022 and remaining high throughout 2023. The Bank of England’s base rate remains at 5.25%, while commercial banks are considering their own policies for the year ahead. 

It’s important to note, however, that many analysts currently expect rate cuts in 2024. This has led to many non-profit organisations considering longer fixed-term savings products, so that they can take advantage of rates while they remain high. 

Keeping a school’s cash safe 

That said, investing your cash invites the question of risk and responsibility, particularly when that cash has been raised from government funds or private donations. To protect a school or trust’s reputation, and the cash itself, it’s crucial to consider a stringent risk management plan. Any non-profit organisation may face some (or all) of the following challenges: 

  • Insufficient reserves and cashflow
  • Over-dependency on limited income sources
  • Inadequate investment management policies

Remember that cash is a more liquid asset than many others, and can offer minimal risk while still generating substantial return. When diversified correctly, your cash can also be fully eligible for protection under the UK government’s FSCS scheme, which guarantees that it will be compensated up to £85,000 if your chosen bank fails. In addition, it’s important to consider an institution’s credit rating and investment grade: the higher the grade, the less likely your chosen bank is to default.  

Creating a treasury policy for a school or trust 

A clear treasury policy helps schools and trusts to analyse financial institutions and the savings products on offer, and calculate potential returns. In turn, this allows key decision-makers to plan for future procurement of equipment and recruitment of staff. It also helps to reassure trustees that cash holdings are safe. In short, your treasury policy should: 

  • Build a framework for future investment decisions
  • Help your trustees to manage resources effectively
  • Meet compliance responsibilities

Start by assessing your investment powers: how much cash can you realistically place into a savings product? Answering this question should account for how quickly you want (or need) to generate returns, and your anticipated short-term cash flow needs. You can then decide who will be responsible for defining and managing your school or trust’s investment objectives, i.e. how much interest you’d like savings to earn, and how long a term you’re happy to invest for. 

Let’s revisit the £2 million cash fund above. You propose that a maximum 20% of those savings be held with any one bank – meaning your limit is £400,000 per bank. This is where you must decide your risk appetite. If the investment grade is too low for your liking, you’d probably look to ensure any deposits were limited to £85,000 so that they were eligible for FSCS deposit protection. 

To help schools and trusts move closer to hiring that next teacher, Insignis Cash has created a treasury policy template specifically for non-profit organisations to use. This should help you to start building a strategy that generates higher interest returns on your cash. Complete the short form below to download our template. 

*Rates respectively available on the Insignis Cash platform as of 23/01/24, subject to a minimum and maximum deposit size. Availability of product will vary depending on the client type.