Heather Lamont says cash in the bank isn't always a good thing for Scottish charities

Have you got too much cash?

It might sound like a daft question, especially to any organisation that’s struggling to make ends meet but for every charity that doesn’t know where the next year’s income is coming from, there’s probably more than one that is long established and has built up a persistent level of cash that sits there year in, year out.

If yours is one of those then you should be thinking about whether you’re making the best use of your resources – and limiting your choice of financial assets to cash alone isn’t always going to do that. Maybe it’s time to think about other types of investment.

Ultimately, cash is rubbish as a long-term asset. Even if you are getting a bit of interest income on your deposits, chances are that it’s not enough to offset the effect that inflation is having on the real spending power of your money.

Think of it this way: if you’ve been sitting on the same £100,000 for the last five years, today it will only buy what you could have bought for around £85,000 when you first put it in the bank. Your spending power has fallen by 15 per cent.

If you’ve been sitting on the same £100,000 for the last five years, today it will only buy what you could have bought for around £85,000 when you first put it in the bank

Heather Lamont

Don’t get me wrong – it is cash that pays the bills and we’ve all got to have it at the ready for when those bills come in, but if you’re not going to spend it in the foreseeable future, you could instead be using some of it to access the stronger returns available from investments like company shares. These can generate a regular income several times higher than you can currently get from cash. Meanwhile, although it’s well known that the price of shares and property goes up and down from year to year, over the longer term you can expect enough growth in the value of your assets to maintain your real spending power.

The idea of going into the market might scare some people off, but nobody’s expecting you to turn into an investment expert overnight. There are plenty of low-cost funds specifically designed to enable charities to access these assets. You don’t need to be huge – even £1,000 is enough to get started. Nor do you need to compromise your organisation’s principles, as there are funds working to a range of ethical and responsible investment policies. And although you wouldn’t invest in shares or property funds unless you expect to stay there for at least a few years, that doesn’t mean locking your funds up in such a way that you can’t convert back to cash if you need to.

All you need to be clear about are what your priorities are for a particular part of your reserves. If it has to be cash, just make sure it’s safe and don’t expect much income from it. If it’s there for the longer term, maybe you could be getting more from it.

Heather Lamont is client investment director at CCLA, sponsor of The Gathering 2015, where she will be leading a workshop on Cash and investments: getting your priorities right at 9.30am on Wednesday 25 February and Thursday 26 February.