Many charities hold cash assets which could be getting better interest rates. UK charities with an annual income of at least £0.5m, owned a total of £250bn in assets, of which 13%, or £31bn, was held in cash, according to recent findings from independent consultancy Broadstone. This comes after the Financial Times 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 faced criticism from the Charity Commission which reported that 42% of charities stated experiencing bad service over the past year.
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.
Long-term approach
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 itself 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.
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