Are trustees unsure whether a charity’s reserves should sit in an ISA or in Premium Bonds? Does the organisation need tax clarity, accountancy certainty or Charity Commission compliance before moving funds?
Trustees and finance leads for charities and community groups will find a concise, evidence-backed comparison focused on legal duties, tax outcome, reporting and accessibility for institutional savers. The analysis is practical: what is permitted, what counts as charity income, how prizes are treated, and the governance checks trustees must complete before investing.
- Eligibility: Most charities and community amateur sports clubs (CASCs) cannot hold a personal ISA but may use charity-specific cash accounts; Premium Bonds can be held by charities in many cases via NS&I accounts — confirm with NS&I rules and charity governing document.
- Tax treatment: ISAs are tax-efficient for individuals but provide no special tax break to charities; Premium Bond prizes are usually tax-free to the holder but prize treatment depends on charity accounting rules.
- Trustee duties: Trustees must act prudently, document investment policy and evidence decisions; holding a speculative portfolio to chase prize income is unlikely to meet fiduciary standards.
- Reporting and compliance: Charities must record interest, prizes or gains correctly under the Charities SORP and report in accounts; Charity Commission guidance on investments and reserves applies.
- Practical outcome: Premium Bonds may suit short-term reserve parking where prize income is a bonus, but do not replace an investment policy; ISAs are rarely available to charities in the same way as individuals and do not offer additional charity tax relief.
Can charities and community groups open ISAs?
Short answer: generally no for personal ISAs; some limited structures may allow tax-wrapped accounts for charities but trustees should assume ISAs are individual-only.
- ISAs (Individual Savings Accounts) are statutory individual wrappers. By design they attach to a natural person with an NI number and a personal tax identity. The standard ISA provider rules and HMRC guidance treat ISAs as individual entitlements, not corporate or charity accounts.
- Charity structures that are bodies corporate (for example, charitable companies) cannot open personal ISAs. For unincorporated charities the same restriction applies: ISAs remain an individual product.
- There are rare exceptions where a charity may operate a tax-advantaged vehicle or segregated trust that receives similar tax treatment (for example, some pension arrangements or specific charitable investment funds) — these are specialised and not substitutes for ISAs.
Relevant guidance and confirmation: see HM Revenue & Customs on ISAs and the Charity Commission on managing money: HMRC, Charity Commission.
How Premium Bonds work for charities and community groups
- Premium Bonds are offered by National Savings & Investments (NS&I). Individuals purchase bonds; each £1 bond is an entry in a monthly prize draw. NS&I issues guidance for organisations: many charities can hold NS&I accounts but must follow proof-of-identity and beneficial ownership rules.
- Charities may be able to hold Premium Bonds in the name of the charity where NS&I accepts them as eligible account holders. NS&I's organisational account rules require registration and evidence of the governing body's identity.
- Prize proceeds received by the charity are credited as receipts; they are not interest but treated as taxable or non-taxable depending on the nature of the charity's activities and SORP accounting classification.
Authoritative reference: NS&I organisational account pages — NS&I.
Tax exemptions: ISAs versus Premium Bonds for charities
- ISAs: ISAs provide tax benefits (no income tax or capital gains tax for individuals), but these benefits attach to the individual holder only. A charity cannot claim the individual's ISA wrapper. Therefore, placing charity funds in an ISA is generally not an available option and brings no direct charity tax exemption.
- Premium Bond prizes: NS&I prizes paid to the holder are tax-free at source for individuals. For charities, prize income is typically treated as part of incoming resources. Generally, charities are already exempt from corporation tax on most types of income applied to charitable purposes; however, tax treatment depends on the activity generating income and whether the income is trading or investment income.
- Practical implication: The apparent tax-free nature of Premium Bond prizes does not automatically create a new exemption for charities. Trustees should consider whether prize receipts are used for charitable purposes and whether any unrelated trading element exists that could create a taxable activity. For certainty, consult HMRC guidance and the Charity Commission.
Authoritative links: HMRC, Charity Commission guidance on investments.
Legal duties for trustees investing in ISAs or Premium Bonds
Trustees must observe statutory and common-law duties when investing charity funds. Key obligations:
- Duty of prudence: trustees must invest and manage funds prudently and in accordance with the charity’s governing document. Chasing speculative prizes or placing large reserves into mechanisms driven by chance may not be prudent.
- Duty to act in charity’s best interests: consider liquidity needs, risk tolerance, mission, and time horizon. Document reasons for choosing Premium Bonds or any alternative.
- Investment policy statement: trustees should adopt and record an investment policy. It should set objectives (preservation of capital, income generation, ethical constraints), and outline delegated authorities.
- Conflicts and delegation: if using local volunteers or staff to make investment decisions, trustees must record delegation arrangements and monitor outcomes.
Cited guidance: Charity Commission — investment decisions and trustee duties: Charity Commission.
Reporting, accounting and Charity Commission compliance implications
- Accounting classification: Premium Bond prizes are generally recorded as incoming resources. The Charities SORP (FRS 102) requires accurate classification: interest, investment income, or other incoming resources as appropriate.
- Reserves policy and designation: trustees must check whether funds are restricted, designated or general reserves. Movement of funds into Premium Bonds or other instruments must respect restrictions and be documented.
- Annual report disclosure: trustees must explain investment policies, performance and significant investment decisions in trustees’ reports and accounts. If Premium Bonds form a material part of reserves, disclose rationale, risk assessment and liquidity implications.
- Audit and independent examination: material holdings and unusual items (large prize receipts) may attract query from auditors or examiners. Keep source documents, NS&I confirmations and minutes showing authorisation.
Reference: Charities SORP (FRS 102) and Charity Commission reporting guidance — Charity SORP guidance.
Ns&i rules and accessibility for community groups
- NS&I accepts applications from charities and community organisations but requires proof of identity, governing document, and evidence of authorised signatories.
- Some organisational products at NS&I are limited (for example, premium bonds caps and account types). Check maximum holding limits and whether joint accounts or trustee names are acceptable.
- Accessibility: Premium Bonds provide quick access to funds by cashing in bonds; however, redemption procedures can take days. For essential cashflow, trustees should ensure a buffer in immediate-access accounts.
Direct link to NS&I organisational advice and application pages: NS&I.
How to assess holding charity funds in Premium Bonds vs an instant-access account
🔎 Step 1 → Check governing document and donor restrictions (is money restricted?)
📊 Step 2 → Review liquidity needs: immediate access vs parking reserves for potential prizes
🧾 Step 3 → Document trustee decision, risk assessment and approval in minutes
✅ Step 4 → Open NS&I account with authorised signatories and keep records of holdings and prizes
Premium Bond prizes: frequency, probability and accounting treatment
- Prize rate and odds: NS&I publishes the 'prize fund rate' and odds of winning. These figures are indicative and change; they should be treated as probabilistic income rather than a guaranteed yield.
- Expectation modelling: trustees can model expected value (average prize per £) but must not rely on prizes as a predictable income stream — treat prizes as windfalls or non-recurring receipts unless modelling shows otherwise and policy allows.
- Accounting approach: record prize receipts when received. If prizes are material and recurring, disclose them as part of investment income or other incoming resources according to SORP classification.
NS&I statistical data: link to NS&I prize statistics at NS&I.
Gift aid and tax relief: interaction with ISAs and Premium Bonds for charities
- Gift Aid: donations claiming Gift Aid are separate from investment decisions. Gift Aid increases a donation's value by allowing charities to reclaim basic-rate tax; ISAs or Premium Bonds do not affect Gift Aid claims.
- Tax relief: charities generally do not pay tax on income applied for charitable purposes. However, treatment of prize receipts should be considered in light of unrelated trading rules (see HMRC guidance). Trustees should document intended use of receipts and whether any trading element exists.
HMRC Gift Aid information: HMRC Gift Aid.
Table: side-by-side comparison for charities
| Feature |
holding funds in an individual ISA (practically unavailable) |
holding funds in Premium Bonds (NS&I organisational account) |
| Eligibility |
Not available to charities; ISAs are individual-only |
Often available; check NS&I organisational rules and signatory proof |
| Tax outcome |
Tax wrapper benefits individual, not charity |
Prizes credited to charity; tax treatment depends on use and SORP |
| Predictability |
N/A for charities |
Low — prizes are probabilistic, not guaranteed |
| Liquidity |
N/A |
Moderate — cashing bonds takes time; immediate needs may require other accounts |
| Trustee scrutiny |
N/A |
High — trustees must document prudence and policy |
| Reporting complexity |
N/A |
Requires SORP classification and disclosure |
Balance strategic: what charities gain and what to watch with ISAs vs Premium Bonds
When Premium Bonds can be a good option ✅
- Short- to medium-term reserves that are not required for committed expenditure.
- Where trustees want a capital-preservation first approach with a small upside (prizes) and accept variance in returns.
- Where governance documents permit such investments and there is clear documentation of decision-making.
What to watch before buying Premium Bonds ⚠️
- Overreliance on prizes for budgeting or programme funding — prizes are not reliable income.
- Failing to document the rationale, risk assessment and minutes approving the purchase.
- Holding restricted funds in instruments that could jeopardise fulfilment of donor conditions or liquidity requirements.
Practical checklist for trustees before moving money into Premium Bonds
- Confirm NS&I accepts the charity as an account holder and collect required identity documents.
- Verify funds are unrestricted or permission is obtained for restricted funds.
- Review liquidity requirements and ensure immediate-access reserves remain available.
- Adopt or update the investment policy and record minutes showing trustee approval and risk assessment.
- Record the expected role of prizes (windfall vs budgeted income) and accounting treatment.
- Notify auditors or independent examiners if holdings are material.
Example scenarios (indicative calculations)
Scenario A: community group with £50,000 general reserves aiming to preserve capital
- Idea: park £20,000 in Premium Bonds as a conservative 'park-and-hope' portion of reserves, leaving £30,000 in instant access for cashflow.
- Expected prize income (indicative, 2026 prize fund rate may change): modelling might suggest an average return of ~0.5–1.5% in expectation — but individual outcomes vary widely. Treat prizes as windfalls.
Scenario B: charity with a tiny earned-income trading arm relying on regular returns
- Premium Bonds are unsuitable if the organisation needs reliable monthly interest to fund activities. Prefer interest-bearing accounts or professionally managed charity deposit accounts.
Governance: minute template and record-keeping suggestions
- Minute heading: "Investment decision: premium bonds purchase — [date]".
- Record: amount to invest, source of funds, liquidity impact, reasons for choosing Premium Bonds, risk assessment, authorised signatories, review timeframe.
- Attach: NS&I account confirmation, copies of governing document clause permitting investments, and updated reserves/investment policy.
Alternatives for charities that cannot use ISAs and wish to preserve capital
- Instant-access charity deposit accounts with banks or building societies offering charity-specific terms.
- Charity notice accounts or fixed-term deposits for longer-term reserves.
- Professional charity deposit funds or cash management services run by regulated providers.
- Where appropriate, a prudent, diversified investment portfolio managed under a formal policy and adviser oversight.
Relevant regulator: Financial Conduct Authority (FCA) for regulated advisory services — FCA.
How can a trustee confirm whether Premium Bonds are permitted by the governing document?
A trustee should check the charity's governing document for investment powers; if unclear, seek written legal advice or contact the Charity Commission. If necessary, obtain a resolution authorising the investment.
Why aren’t ISAs available to charities?
ISAs are statutory individual savings products tied to a person’s tax identity and National Insurance number; charity entities are not eligible holders under HMRC rules.
What happens if a charity wins a large Premium Bond prize?
Prize proceeds should be recorded as incoming resources; trustees must consider donor restrictions and whether the funds are to be used for specific purposes and disclose material windfalls in accounts.
Which accounting code should be used for Premium Bond prizes?
Prizes are usually treated as investment income or other incoming resources under the Charities SORP; classification depends on the nature of the receipt and the charity's activities.
How often should trustees review holdings in Premium Bonds?
Review at least annually and whenever reserves or liquidity needs change; document reviews in trustee minutes and the annual report.
What proof does NS&I require to open an organisational account?
NS&I requires identity verification, evidence of charitable status and authorised signatories; check NS&I's current account opening checklist and application forms.
What happens if trustees act without recording a rationale for investing in Premium Bonds?
Unrecorded investment decisions create governance risk; Charity Commission or auditors may challenge prudence and compliance with trustee duties.
Conclusion: long-term outlook for charities holding ISAs vs Premium Bonds
Premium Bonds can be a lawful, modestly conservative tool for charities to park spare reserves when trustees value capital preservation and accept unpredictable prize income. ISAs are not a practical option for charities because they are individual tax wrappers. The critical legal and financial tasks are the same regardless of instrument: document the decision, respect restrictions, ensure liquidity and report fully under the Charities SORP.
Three-step action plan to act on today
- Review the governing document and confirm investment powers; record findings in the trustee minutes.
- Contact NS&I (or chosen provider) to confirm organisational account rules and collect the list of required documents for opening an account.
- Update or adopt a one-page investment policy note that states purpose, liquidity needs, approved instruments (including Premium Bonds if permitted), and review cadence.
Trustees should consider professional advice for substantial funds or complex tax questions. For public guidance, consult the Charity Commission, HMRC and NS&I pages linked above.
