The bank balancing act: looking beyond interest rates

Phil Herriott, Director of Education at Lloyds, considers why headline interest rates are far from the full story when it comes to choosing a deposit provider.

Read time: 5 mins  Added: 04/11/26

School children sitting in a classroom

A new approach to managing reserves

In recent years, the education sector has seen a shift in how some finance leaders approach banking decisions.

Where once a school would typically maintain a straightforward banking relationship with a single provider, some academy groups, which may be managing turnovers exceeding £500 million across 50 or more schools, are reviewing their deposit arrangements to explore alternative options.

This evolution reflects two converging pressures. First, the sector has become more commercially sophisticated. Finance teams now often include more commercially minded leadership, who are asking pertinent questions, like: “Why concentrate all our deposits with one bank?”

Second, the Department for Education has explicitly encouraged schools to review their banking arrangements and seek improved returns, recognising that enhanced interest earnings could help bridge the funding gap created by inflationary pressures and constrained public funding.

While many schools and trusts maintain established banking relationships, some are reviewing their deposit arrangements to determine whether alternative approaches could support their treasury objectives, including deposit platforms that enable funds to be placed across multiple institutions.

On the surface, this seems entirely rational, as these platforms can offer access to a range of providers, with some offering interest rates that can exceed what’s on offer on the high street.

But it’s worth pausing to look beyond those headline numbers.

Assessing risk and return

 

As Nick Robinson, Business Transaction Banking at Lloyds, explains: “Deposit platforms operate as brokers between customers and a diverse range of financial institutions. When a school uses such a platform, it gains access to what might be termed a tiered marketplace; some providers hold top-tier credit ratings, while others do not, and many are overseas institutions.

“The platform takes a percentage cut and facilitates the movement of funds, but critically, the school loses direct contact with the institution holding its money. There is no relationship manager to call, no direct conversation about how the funds are being used or managed.”

Those higher interest rates warrant scrutiny too. Banks typically offer the most attractive rates when they require liquidity. For an education institution with fiduciary responsibilities to its pupils and stakeholders, placing substantial reserves with an institution sending these signals could represent a material risk.

This is not scaremongering. It is a basic principle of prudent financial management that risk and return are inseparable. A finance leader evaluating deposit options must ask not only: "What rate am I getting?" but: "What do I actually know about the institution holding it?" 

Assessing risk and return

As Nick Robinson, Business Transaction Banking at Lloyds, explains: “Deposit platforms operate as brokers between customers and a diverse range of financial institutions. When a school uses such a platform, it gains access to what might be termed a tiered marketplace; some providers hold top-tier credit ratings, while others do not, and many are overseas institutions.

“The platform takes a percentage cut and facilitates the movement of funds, but critically, the school loses direct contact with the institution holding its money. There is no relationship manager to call, no direct conversation about how the funds are being used or managed.”

Those higher interest rates warrant scrutiny too. Banks typically offer the most attractive rates when they require liquidity. For an education institution with fiduciary responsibilities to its pupils and stakeholders, placing substantial reserves with an institution sending these signals could represent a material risk.

This is not scaremongering. It is a basic principle of prudent financial management that risk and return are inseparable. A finance leader evaluating deposit options must ask not only: "What rate am I getting?" but: "What do I actually know about the institution holding it?"

The case for relationships and structure

Lloyds brings a fundamentally different approach to education sector deposits. While we offer education-specific rates designed to help schools make the most of their available cash balances, we’re not competing on rates alone, we provide structure, security and service too.

First, security. Nick Robinson explains: "Lloyds is a well-capitalised UK ring-fenced bank. All deposits are held within the bank, not invested elsewhere. That security of funds is paramount, particularly for an education institution managing public money."

Second, proactive relationship management. When a school places funds on deposit with Lloyds, we assign a dedicated relationship manager who doesn't simply wait for maturity notices. Instead, as the end of the deposit term approaches, that manager reaches out to discuss rates, the school's evolving cash position and how to layer deposits across different products, which might include instant access, fixed term, and notice accounts, in order to optimise returns whilst maintaining necessary liquidity. This is not an automated email. It is a structured conversation tailored to the school's specific circumstances.

Third, education-sector expertise. Our relationship managers understand the specific cash flow patterns of schools and academy trusts, like the timing of salary payments and the predictable peaks and troughs in expenditure. That understanding supports an informed approach to managing cash, including how much should remain liquid, how much can be held in longer-term deposits and how to balance security with returns.

When an education provider works with Lloyds, we can conduct a detailed review of historical cash balances and spending patterns, establishing appropriate liquidity buffers, perhaps equivalent to two months of salary payments or three months of normal outgoings, for example. The cash above that buffer can then be strategically deployed across different products and timeframes, to generate returns, while maintaining the security, accessibility, and relationship support that an education institution needs.

A final word

Academy trust finance leaders operate under genuine pressure to maximise returns. That is legitimate, but maximising returns is not just about chasing the highest advertised rate. It means understanding risk, maintaining appropriate liquidity and working with a bank which is invested in your organisation's success, not simply broking your money through a remote platform.

We invite education finance leaders to have that conversation with Lloyds to understand how we can help you meet the requirements of your trustees and the Department for Education, while also managing your deposits in a genuinely low-risk environment. That is what a banking relationship should mean.

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