Stuart Freeman: How UK charities can make their money work harder 

08 Apr 2024 Expert insight

CCLA’s head of its cash management team looks at how charities’ long term funding can be an important governance consideration…

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Cash is the asset class that people are most often familiar with, as it is used to pay for goods and services on a daily basis. Indeed, charities require cash in order to provide the services they offer. However, it can be difficult for the governance of a not-for-profit organisation to decide what to do with their cash deposits. 

A recent Financial Times article brought attention to the pressure that has been faced by UK charities in recent years. Whether it be from the closure of bank accounts to a rise in demand for the services they provide, and cuts in funding from local authorities and government grants, many charities have had no choice but to dip into their own reserves or seek other sources of income to continue to provide the services they offer.  

The banking sector has also recently faced criticism from the Charity Commission which reported that 42% of charities stated experiencing bad service over the past year. 

Long-term funding for charities is an important governance aspect, as knowing what money will come in and when, can allow charities to more accurately and confidently plan for the services they provide. 

A key consideration is how to invest available money and whether there are better options available than high street bank deposit accounts.  

The FCA launched an advertising campaign at the end of February on the benefits of switching to higher rate savings accounts. The campaign encourages savers to shop around for a better rate and stresses that their money could be working harder.  

There is an alternative

Many charity treasurers and finance managers find that cash funds prove an attractive option. These funds, some of which are exclusively available to charities, are an efficient and low-risk way to access returns that can be above those available from high street bank deposit accounts. 

Using a cash fund means that you are not making a deposit directly with an individual bank or building society. 

The main objective of cash funds is to keep investors’ capital secure while maintaining easy access for withdrawals. They typically do this by placing cash in deposits and other cash instruments across a wide spread of carefully screened banks.

These professionally managed funds are able to assess and monitor the credit quality of borrowing institutions across the market. They should have controls such as limits on the size and length of funding that can be placed with any one bank. 

Diversifying the fund’s assets across a large number of high quality borrowers is an important way in which investment managers seek to ensure that the fund’s capital is secure and that investors are able to withdraw their cash without notice. 

In fact, the Fund rating of a cash fund – something that you should ask about when researching funds – will often be higher than any individual bank’s credit rating. 

But at the same time, with the benefit of its institutional status and by being able to place some of the cash for longer periods than just overnight, a cash fund will often be able to offer its investors returns much closer to the Bank of England’s Official Bank Rate. 

This should be welcome news for trustees and executives seeking to make effective use of their charity’s financial resources.

Important Information: This document is issued for information purposes only. It does not constitute the provision of financial, investment or other professional advice. Past performance is not a reliable indicator of future results. The value of investments and the income derived from them may fall as well as rise. Investors may not get back the amount originally invested and may lose money. Any forward-looking statements are based upon CCLA's current opinions, expectations and projections. Such opinions, expectations or projections may be subject to change at any time. CCLA undertakes no obligations to update or revise these. Actual results could differ materially from those anticipated. CCLA Investment Management Limited is authorised and regulated by the Financial Conduct Authority.


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