Restricted, Unrestricted and Designated Funds

Picture1Unrestricted general funds can be spent at the discretion of the trustees to further any charitable purpose of the charity. This means that these funds can be spent in their own right, or can be added to a restricted fund which does not have enough money to cover its expenditure

Designated funds are still unrestricted, but have been set aside by the trustees for a particular future project or commitment.  The designation is for administrative purposes only and carries no legal authority

Restricted funds are completely different.  Restricted funds refer to funds held under ‘specific trusts’, which is that they are held for a specific charitable purpose.  The restriction carries the weight of the law and so restricted funds can only be lawfully spent on the specific charitable purpose for which they were provided.  As with designated funds, there is no requirement for restricted funds to be held in a separate bank account

Charity Reserves

What Are Reserves?

Reserves are that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes. This definition excludes restricted income funds and endowment funds, although holding such funds may influence a charity’s reserves policy. Reserves will also normally exclude tangible fixed assets such as land, buildings and other assets held for the charity’s use. It also excludes amounts designated for essential future spending.

Reserves also exclude funds which have particular restrictions on how they can be used. Trustees should consider for what purpose restricted funds are held and how they are being used in order to identify those resources that are freely available to spend.

You can find out much more about Reserves here