With interest rates in the doldrums, more charities should be looking to invest their funds, says John Low.

In conversations I’ve had with charity leaders in recent months, there’s one subject which keeps surfacing again and again: with interest rates so low that they don’t even cover inflation, how do we get a good return on our reserves?

Some charities have a lot of specialist knowledge and skills when it comes to investments. Indeed charities generate almost £3bn in income from investments every year. But it has been clear from our discussions that this activity is heavily skewed towards the bigger ones.

In this low interest rate environment, the ability to invest is likely to be something that charities no longer see as an optional “nice to have”. While investing will not be a realistic option for every charity, it is something that every charity with longer-term reserves or certainly an endowment should be thinking about.

Trustees have a responsibility to make the most of their charities’ reserves in line with Charity Commission guidance. Investments are one option for potentially generating a sustainable, reliable return which can help with future growth and protect against the impact of inflation.

Investment decisions always need to be considered carefully. They don’t come with a guaranteed return, and the value of investments can go down as well as up. It can sometimes be tempting to put these difficult types of decisions on the back burner.

However, while all investments carry some degree of risk, charities will need to weigh these up against the impact of doing nothing.

All charities need some cash to cover day-to-day operating expenses, beneficiary programmes and unexpected events. However, at current interest rates, keeping a charity's longer-term reserves on deposit in the bank risks erosion in real terms due to the impact of inflation. That may undermine a charities’ ability to meet their financial obligations to their beneficiaries in the future.

Investments an attractive option

We are finding that charities increasingly see investments as an attractive option. CAF research carried out among charity chief executives at the end of last year found that one in five were thinking more about investments as a direct result of the base rate reduction to 0.25 per cent last year.

But there are obstacles to overcome. Around one in three chief executives said their organisations would be likely to make more use of investments if there was a less complex and less time-consuming way to do it.

We developed the CAF Investment Account with the aim of making it easier for charities to buy and sell online and manage their own investments, while complying with normal charity due diligence processes, in a much more efficient and user-friendly way.

By introducing the UK’s first online investment account exclusively for charities, we have tackled some of those obstacles to make the process easier, faster and more accessible. The account provides a robust online investment administration and trading service, readily available reports and mandatory dual authorisation which will help charities comply with governance requirements and minimise the risk of error or fraud. It requires just a single application to enable access to 4,000 funds, removing the need for the reams of paperwork associated with multiple applications.

Ultimately, we know that selecting and managing investments can divert precious time and resource away from delivering the mission, yet investment decisions are important and need to be carefully considered. This is always going to take time. But by removing much of the manual administration from the process, it will be easier and more efficient for charities to make the best financial decisions, freeing up precious time and creating the opportunity for higher rates of return than leaving money in the bank.

John Low is chief executive of the Charities Aid Foundation

More information about the CAF Investment Account and how to apply can be found here: www.cafonline.org/investments 

Civil Society Media would like to thank Charities Aid Foundation for its support with this article.

Important information

The value of investments may fall as well as rise. You may not get back the full amount that you originally invested.

Past performance is not a guide to future performance.

There is no guarantee about the level of capital gains or income that will be generated.

The CAF Investment Account is offered to you by CAF Financial Solutions Limited (CFSL) and is operated and supplied by Interactive Investor Trading Limited. Interactive Investor Trading Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Standon House, 21 Mansell Street, London E1 8AA.

CAF Financial Solutions Limited (CFSL) is authorised and regulated by the Financial Conduct Authority. Registered office is 25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4TA. CFSL is a subsidiary of Charities Aid Foundation (registered charity number 268369).