We use a number of banks to spread our cash holdings across institutions. We use RBS as our main clearing bank for day to day transactions, and diversify other money across the other banks. We generally hold between 15%-25% of cash with each bank.
To do this, we partner with Cashfac Technologies, a global leader in Cash Management solutions to automate and efficiently manage how money is held across banks.
The interest rate payable on the Transitions Bank Account is currently paid at 1% below the Bank of England base rate. For any period when the base rate is 1% or less, we do not pay interest. Any difference between the interest rate received by the Trustees and that credited to the Transitions Bank Account is retained towards the cost of providing our services.
When selecting banks, we look at both creditworthiness and how likely our members are to hold money with each bank elsewhere. By using strong banks that do not have a presence on the high street, with the exception of RBS and Metro Bank, members will be less likely to already have accounts with these banks elsewhere. This should ensure that FSCS protection is not diluted by any other cash deposits they hold. We continue to monitor the banks we use and the amounts invested, which may change from time to time. The Banks we currently use are:
Of the banks selected, one bank is based in Guernsey and therefore falls under the Guernsey Banking Deposit Compensation Scheme, rather than the FSCS. This scheme provides compensation of up to £50,000 per person per licensed bank. Even though the compensation under this scheme is lower, we find this bank to be financially strong and felt that the additional diversification would still provide better overall protection for members. It is also a bank that we expect few members will have other cash holdings with. We don’t consider banks in jurisdictions that aren’t covered by a strong compensation scheme. All of the other banks selected are covered by the FSCS.
The FSCS limit of £85,000 covers all savings each member has with that financial institution. By spreading client money across banks, the money held has a higher level of FSCS protection. For example, if a member has a cash holding of £200,000.00 with one bank, only the first £85,000 is protected. With the cash spread across 5 banks, each bank would hold just £40,000 (20%). This means the whole fund is fully protected as the £85,000 limit is not breached.
In addition, the £85,000 compensation limit is the total of private savings and money held within the Transitions Bank account meaning our members’ overall savings are less likely to breach the FSCS limit and should be better protected.