It is more important than ever for charities to manage their cash reserves for the future. 

It has been a tumultuous time for charities looking to protect and maximise the performance of their assets and reserves. Charities are faced with highly volatile investment markets, low interest rates and looming concerns about inflationary pressures. 

Pressures facing charities

The past 12 months have brought challenges to both short and long-term reserves, at a time when public face-to-face fundraising activities have been disrupted by the pandemic. 

Interest rates on cash deposits have certainly come under pressure recently. The Bank of England lowered its base rate to 0.1%. Therefore, many of the traditional charitable deposit funds simply do not pay their savers any notable rate of interest. 

Accessing cash

Instant access to cash remains important for a charity. It can be tempting to turn to existing deposit providers and choose to tie-up cash deposits for longer than is usually necessary to try and generate some return on the cash. 

By tying up too much in fixed-rate deposits, however, it may be difficult to access these funds without incurring penalties. In an emergency or a cashflow shortfall scenario, trustees may also feel compelled to look at their other assets, such as their long-term reserves. However, accessing long-term capital at short notice, can affect regular, and often much-needed, dividend income streams. 

It is important for charities to also question if they are selling assets for cash at the right time. 

The investment market experienced much higher levels of day-to-day volatility in 2020. Depending on where a charity invested, it may not necessarily have been the best possible time to cash out longer term investments to meet short-term funding problems. 

Financial investments: charity trustees’ responsibilities 

Trustees are duty bound to ensure that they exercise care and attention with long-term financial investments. Under the CC14 guidelines from the Charity Commission, trustees who do not have knowledge and experience in this area should also take advice from an independent. 

Perhaps a charity was forced to sell some of its shares last year, when the markets were down, because its cash was tied up in fixed rate bonds. This type of reserve management error could have been easily avoided with our independent charity financial advice services.

Trustees should look beyond the traditional charity deposit funds, with current yields in the 0.01% AER area, and embrace these innovations in the marketplace. 

Remember, you are responsible to maximise your charity’s annual financial returns, where possible, and by doing nothing, you could attract negative scrutiny from your stakeholders especially when fundraising is under pressure. Trustees should make proactive, positive decisions with their financial planning and then tell everyone about them in their annual report.

How Thomas Westcott can help

At Thomas Westcott, we can offer our clients access to innovative ways of managing charity cash reserves. Charities do not need to rely on longer fixed-rate deposits from existing providers to achieve a competitive market rate of interest. 

Our services, in conjunction with our colleagues at Thomas Westcott Chartered Accountants, can help trustees forecast their future expenditure over the year and build a bespoke plan with a suitable combination of notice accounts, instant access funds and some longer-term options for cash deposits, which are deemed to be surplus. The capital can also be well spread, so no more than £85,000 is held in any financial institution at one time. 

Thomas Westcott Chartered Financial Planners advises many charities in the South West. This includes: 

  • Managing short term reserves using a blend of cash deposit arrangements. 
  • Advice on longer term reserves, perhaps in a bespoke investment portfolio to match the specific objectives of the charity. 
  • Advice on managing restricted funds where income may need to be used for a specific purpose determined by a testator’s bequest. 

For any advice on these issues, please contact me or a member of our Chartered Financial Planning team.