If you were close to losing your wits about the lack of interest the banks were paying on cash when interest rates were 0.5%, you were not alone.

Charities with cash balances that used to earn a modest but safe income stream have found this welcome source of unrestricted funding has just about disappeared in the six years since the Bank of England cut the base rate to 0.5%. With the announcement of a further drop to 0.25% this month, and the hint of perhaps further to come, some organisations are now starting to worry about being charged by their banks instead of receiving interest. So, what can you do?

Cash is not a good store of value: even if you don’t spend the little interest it may generate, thanks to inflation it will lose its real spending power over time

Heather Lamont

First, if you haven’t done so already, get used to it. Unless economic events and central bank policies take an unexpected turn you can’t expect cash deposits to generate a decent rate of income, meaning one that at least matches inflation, any time soon.

So think about what you’re holding the cash for. If you are clear about what you need it to do for your organisation, you’ll have a much better idea of how you should treat it.

Are you expecting to spend it? Fine, it’s going to be put to good use soon and all you need worry about is making sure that it’s safe where it is and that you can access it when you’re ready to write that cheque.

Does it have to be kept aside as a contingency in line with your reserves policy? Also fine. The reserves policy is supposed to help you make the best use of your resources, and one good use of cash is to ensure that the organisation is resilient in the face of the risks that you’ve identified.

But cash isn’t good at multi-tasking, and if you need it there as a buffer in case of a budget shortfall, you can’t expect it to be generating resources for your work at the same time. So again, safety first: make sure you’re confident about who you’re leaving it with, and be wary of giving up ready access in return for a smidgeon more interest. Getting an extra 0.25% interest won’t make that much difference to you; finding that you can’t get your cash back if you do need it probably will.

Finally, check whether you have cash sitting around for long periods over and above the level required by your reserves policy. Cash is not a good store of value: even if you don’t spend the little interest it may generate, thanks to inflation it will lose its real spending power over time. If you can’t explain how you’re going to spend it, or why it must be held as cash to manage the risks mentioned in your reserves policy, you should probably be making better use of it.

That could mean using investment funds to buy assets like shares that may go up or down in value over the short term – not really a problem, since you’ve just agreed you’re not planning to spend this part of your assets – but should certainly give you a much better income stream and, over the long term, support your real spending power in a way that cash never can.

Heather Lamont is a client investment director at CCLA, the leading specialist manager of investment assets for UK charities and public sector organisations.