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Making school reserves work harder: a guide for school and trust leaders
In an era of increasing demands on educational institutions, school and academy trust leaders face an important challenge: how to make financial reserves work harder without compromising accessibility or security. This article outlines practical guidance into how schools can optimise their cash reserves through strategic deposit management.
Read time: 3 mins Added: 14/08/25
Why school reserves matter more than ever
Many schools and trusts are holding significant reserves, ranging from short-term payroll allocations to long-term contingency and endowment funds. There is therefore a growing need to ensure these funds are not only secure but also productive. The economic backdrop is sobering, with government borrowing costs rising and public spending under pressure. In this context, maximising the yield on reserves becomes not just a financial opportunity but a necessity.
Understanding the reserve landscape
School reserves generally fall into three categories:
- short-term funds for payroll and operational expenses
- medium-term funds for capital projects
- long-term reserves including contingency and endowment funds.
Each category has different liquidity needs and risk tolerances, which should inform how funds are managed.
The case for layering reserves
Reserve layering refers to dividing funds across different deposit products based on their intended use and time horizon. This allows schools to maintain liquidity, earn higher interest on longer-term funds, and reduce risk through diversification. A 'rates lasagna' approach, layering funds across current accounts, instant access savings, notice accounts, and fixed-term deposits, can significantly increase interest income.
Deposit products explained
- Current Accounts: Essential for day-to-day operations but typically offer no interest.
- Instant Access Savings: Offer slightly better returns and same-day access.
- Notice Accounts: Provide higher interest rates with notice periods starting at 32 days.
- Fixed-Term Deposits: Lock in funds for a set period in return for a guaranteed interest rate.
Practical examples of layering
For example, splitting long-term reserves into four equal parts and placing them in three, six, nine, and 12-month fixed-term deposits creates a rolling maturity schedule. Another structure might combine instant access, 32-day notice, and three-month fixed-term deposits to balance flexibility and yield.
Managing risk and administration
Once deposits exceed the Financial Services Compensation Scheme (FSCS) limit, which is currently £85,000 per institution, schools are effectively lending money to financial institutions. Lloyds provides tools and guidance to help schools evaluate the risk-return profile of different deposit products and manage the administrative complexities of multiple accounts.
Next steps for school leaders
- Assess your current reserve structure and policy.
- Engage with your banking partner to explore suitable products.
- Develop a layered deposit strategy based on liquidity needs and risk appetite.
- Monitor and review regularly as interest rates and funding needs change.
Turning passive funds into active assets
In an uncertain financial climate, school leaders should take a proactive approach to managing reserves. By adopting a layered deposit strategy and using the full range of available products, schools may be able to improve their financial resilience. With the right guidance and a clear strategy, reserves can work harder to support long-term goals.
For more information on deposit rates for schools and academy trusts, please contact smedeposits@lloydsbanking.com.