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In recent years, inflation has been a silent thief. Consumer prices rose by 5.4% in 2021, 10.5% in 2022, and 4.0% in 2023. The Bank of England expects consumer prices to rise by a further 2.75% into 2024. While philanthropic costs have risen with inflation, revenues have only increased by about 1% each year. As a result, more and more charities are appealing for their reserves.
Charities often keep these reserves “safely” in banks. However, due to inflation, the purchasing power of £100 in the average current account at the start of 2021 has been reduced to just £86 at the start of 2024. The performance of many savings accounts has seen little improvement.
So what is currently the smartest way for charities to protect their buried treasure?
Large charities (income over £500,000) collectively hold around £31bn of cash, and over half have no long-term investments. As a result, it could lose around £1.5bn a year in revenue.
Bonds, stocks, and other investments are good long-term stores of value. However, it is not always suitable if a charity wants immediate access to its reserves.
Near instant access
In contrast, so-called cash savings funds aim to provide (a) returns close to the Bank of England’s official banking rate, (b) a high degree of security, and (c) near-instantaneous access.
(a) Cash Savings Funds aim to provide returns close to the Bank of England’s prime interest rate. To achieve that goal, they constantly explore the market and deposit their money with different banks and building societies at the best interest rates they can find.
© CCLA The Bank of England’s official bank rate has increased from 0.1% to 5.25% over the past three years and is currently 5%.
(b) High degree of safety: Cash Deposit Funds invest in banks and building societies that are rated as financially stable, some of which do not accept charities as account holders. there is.
(c) Near-instant access: You can generally withdraw cash from your Cash Deposit Fund within two business days.
The Bank of England expects consumer prices to rise by a further 2.75% in 2024. However, most UK cash savings funds currently offer returns of around 5%, but yields will fall if the Bank of England cuts interest rates. This premium can recoup some of the inflation losses incurred in recent years. Don’t settle for less.
