Can My Charity Invest Money It Holds in the Bank

Many charities find themselves holding money in the bank for periods of time. This might come from grants paid in advance, a successful fundraising campaign, a major donation, or a planned project that will not begin for several months. Naturally trustees start to wonder whether the charity can invest this money so it grows rather than sitting in a low interest account. The short answer is yes. Charities in the UK can invest their funds, and in many cases they are encouraged to do so as long as certain rules and duties are followed.

Investing charitable funds can help protect against inflation, strengthen long term sustainability, and support future services. However trustees must balance opportunity with risk, and they must follow the rules set out in charity law. This guide explains when and how a charity can invest, what kinds of investments are allowed, the duties trustees must meet, and the practical steps needed before investing any charitable money.

Are Charities Allowed to Invest Money

Yes. UK charities can invest funds as long as the investment supports the charity’s best interests and does not conflict with its purposes. The Charity Commission recognises investing as a legitimate way for charities to use money that is not needed immediately.

Charities can invest:

• Surplus funds

• Reserves

• Restricted funds (in some cases)

• Permanent endowment

• Donations that are not earmarked for a specific project

In my opinion many charities underuse investment because trustees worry about risk or compliance. The law allows investing, but trustees must follow proper process and document their decisions.

Why Charities Invest Their Money

The reasons charities invest are similar to why individuals or companies invest, but with added emphasis on stewardship and long term stability.

1. Protecting value against inflation

Charity funds lose value over time if they sit in a standard bank account. Investing helps preserve purchasing power.

2. Building financial resilience

Investment income can provide long term stability especially when donations or grants fluctuate.

3. Supporting future projects

Larger charities invest reserves so they can fund capital projects, new services, or operational growth.

4. Generating additional income

Investments can create returns that support charitable activities without relying solely on fundraising.

5. Managing endowments

Some charities hold permanent endowment funds which must be invested to generate an income stream.

Charities are encouraged to manage resources responsibly which often includes appropriate investing.

What Duties Do Trustees Have When Investing

Trustees have legal duties when making investment decisions. These are set out in the Trustee Act 2000 and Charity Commission guidance.

The main responsibilities are:

Duty of care

Trustees must act with reasonable care and skill. If a trustee has professional financial experience they are expected to use it.

Duty to follow the charity’s governing document

Some governing documents specify what investments are allowed or prohibited. Trustees must follow these rules.

Duty to consider the charity’s purposes

Investments must not conflict with the charity’s mission. For example a health charity may avoid tobacco company shares.

Duty to diversify

Where possible, investments should be diversified to reduce risk unless there are justified reasons not to.

Duty to seek proper advice

Trustees should obtain appropriate advice from someone with suitable expertise unless the investment is small or low risk.

Duty to act in the charity’s best interests

The investment should support the charity’s financial stability and long term position.

Duty to review investments regularly

Investment portfolios should be monitored, reviewed, and adjusted when necessary.

In my opinion the duty to document decisions is often overlooked. A simple set of minutes showing the reasoning is critical and protects trustees if challenged.

Types of Investment Charities Can Use

Charities are allowed to use several types of investment. Not every charity needs to use all of them. The right choice depends on scale, risk appetite, and liquidity needs.

1. Bank and Building Society Deposits

This includes:

• Instant access savings

• Notice accounts

• Fixed term deposits

• High interest business accounts

These are the simplest and lowest risk forms of investment.

Benefits:

• Very low risk

• Easy to manage

• Suitable for short term funds

• No specialist advice needed

Drawbacks:

• Low returns

• Value may fall behind inflation

Many small charities use these exclusively.

2. Investment Funds and Managed Portfolios

This includes:

• Charity-specific investment funds

• Ethical investment funds

• Balanced portfolios managed by investment firms

• Low-cost index funds

These provide exposure to a diverse mix of shares, bonds, property, or alternative assets.

Benefits:

• Higher potential returns

• Professional management

• Diversification

• Can be aligned with ethical or responsible policies

Drawbacks:

• Higher risk

• Fees apply

• Value can fluctuate

Trustees must take advice before choosing these unless they have relevant expertise.

3. Social Investments

These are investments made to achieve both a financial return and a social impact. Examples include:

• Loans to community organisations

• Investing in social enterprises

• Community shares

• Impact funds

These align financial stewardship with social purpose.

Benefits:

• Supports mission-aligned projects

• Can enhance reputation

• Can create measurable social impact

Drawbacks:

• Returns may be lower

• Higher risk than traditional investments

• Requires due diligence

Social investments should be considered carefully.

4. Property Investments

Some charities invest in:

• Commercial property

• Residential property

• Land

• Long leaseholds

Property can generate rental income and long term appreciation.

Benefits:

• Predictable income

• Long term stability

• Tangible asset

Drawbacks:

• Illiquid

• Management costs

• Market risk

• Upfront capital required

This suits larger charities with significant reserves.

5. Permanent Endowment Investments

If a charity holds permanent endowment it must invest these funds because they cannot be spent. Instead the charity uses the income generated from the investment.

Trustees should consider:

• Suitable long term investment strategy

• Ethical considerations

• Professional advice

• Risk tolerance based on the endowment’s purpose

Permanent endowment is subject to strict rules so trustee guidance is essential.

Can a Charity Invest Restricted Funds

Charities can sometimes invest restricted funds but only if:

• The restriction does not prohibit investing

• The funds are not required immediately

• The investment suits the planned use

• The investment does not put the restricted purpose at risk

For example a charity that receives a grant for a project starting next year can invest the funds safely in a low risk notice account. However it cannot invest in high risk assets that could result in the loss of the restricted funds.

Can Charities Invest Reserves

Yes. Many charities create reserve policies that set out:

• How much money must be kept liquid

• How much can be set aside for longer term investment

• How investment returns should be used

Investing reserves helps long term sustainability and reduces reliance on seasonal fundraising.

What Cannot Be Invested

A charity must not invest funds that:

• Must be spent immediately

• Are restricted for a specific urgent purpose

• Are held on trust for beneficiaries with no investment clause

• Would breach the charity’s governing document

Trustees should check any grant agreement for restrictions before investing grant income.

Ethical and Responsible Investing

Many charities choose ethical investment strategies. These avoid investments that conflict with the charity’s aims such as:

• Fossil fuels

• Tobacco

• Gambling

• Arms manufacturing

• Alcohol

• Companies with poor human rights practices

Some charities adopt full ESG (Environmental, Social and Governance) strategies. In my opinion ethical investing is extremely important where public perception and mission alignment matter.

What the Charity Commission Expects

The Charity Commission provides clear expectations for trustees who invest.

Trustees should:

• Have an agreed investment policy

• Record their decision making

• Review investments regularly

• Demonstrate that decisions were made with reasonable care

• Seek professional advice where appropriate

• Ensure investments align with the charity’s risk level

Trustees should not:

• Invest without understanding risks

• Chase high returns without justification

• Ignore ethical considerations

• Mix personal views with fiduciary duties

• Fail to document decisions

• Leave significant funds idle for long periods

A well documented investment policy protects the charity and trustees.

Practical Steps Before a Charity Invests Money

1. Review the governing document

Check whether investing is allowed and whether any restrictions apply.

2. Assess financial position

Ensure cash flow requirements are understood so only surplus funds are invested.

3. Agree investment objectives

For example growth, income, ethical investment, or capital preservation.

4. Decide risk appetite

Every charity has a different tolerance for risk depending on its purpose, beneficiaries, and funding patterns.

5. Take professional advice

Independent advice helps trustees make appropriate decisions.

6. Create an investment policy

This outlines how investments will be managed and reviewed.

7. Document the decision

Record reasoning, advice taken, strategy, and expected outcomes.

8. Review regularly

Monitor performance and adjust strategy as needed.

Real UK Examples

Example 1: A Medium Sized Charity With Reserves

A charity holds £250,000 in unrestricted reserves. After taking advice trustees move £150,000 into a diversified ethical investment fund with medium risk. The remaining £100,000 stays in bank deposits for short term use.

Example 2: A Grant Funded Project

A charity receives a £50,000 grant for work beginning next year. The trustees place the funds into a 12 month notice account to earn interest without risking the restricted purpose.

Example 3: A Wildlife Charity With Endowment

A wildlife charity holds a permanent endowment which must be invested. The trustees adopt a long term growth strategy aligned with environmental ethics.

Example 4: A Small Community Organisation

A small charity has £10,000 in the bank and no immediate need for the funds. They choose a high interest business savings account as a low risk investment.

What Happens If Investments Lose Money

Investments can fall in value. When this happens trustees must:

• Review the strategy

• Assess whether risk levels are appropriate

• Document their decisions

• Consider taking advice

Losses do not automatically mean trustees failed in their duties. What matters is the quality of the decision making and whether it was reasonable at the time.

Common Mistakes Charities Make With Investments

• Leaving large amounts of money idle in low interest accounts

• Investing without reviewing cash flow needs

• Taking risks without understanding them

• Failing to document decisions

• Choosing investments that conflict with charitable values

• Not seeking professional advice

• Mixing restricted and unrestricted funds

• Assuming a trading subsidiary is needed for investment (it is not)

Avoiding these mistakes protects the charity and ensures investments support long term goals.

Final Thoughts

Charities can absolutely invest money held in the bank. In many cases investing is a responsible and sensible way to protect value, strengthen long term financial security, and support the charity’s mission. Trustees simply need to follow the rules, document decisions carefully, and choose investment options that match the charity’s risk level and purpose.

In my opinion more charities should explore investing especially as inflation reduces the value of cash over time. With clear governance and proper advice investing becomes an important tool for long term sustainability.