Much-needed’ guidance on how to invest surplus funds comes as more trusts dip below DfE’s 5% reserves threshold

The Department for Education has provided extra guidance to academy trusts on how to invest surplus funds - while acknowledging that financial reserves have fallen.

The changes come in an update to non-statutory guidance, published today, on how trusts should manage reserves.

The guidance estimates that around 80 per cent of trusts hold reserves worth at least 5 per cent of their total income.

Reserves below this threshold are seen as potentially indicative of financial vulnerability, although some larger trusts or those without significant investment or growth plans “may decide to maintain reserves below this level”, the guidance says.

A previous version of the guidance, from last October, said 90 per cent of trusts had reserves of at least 5 per cent, with the fall likely reflecting the fact that more trusts are having to eat into reserves as funding pressures bite.

The guidance goes on to set out how trusts holding funds “that are not needed now” might be able to invest them to generate extra income.

They can do this “by reviewing current trust bank and saving accounts, cash reserve locations and interest rates available to establish where or how investment returns may increase”, the document states.

This, the guidance continues, can include reviewing the type and amount of accounts held, and avoiding “capital at risk investments” - where funds could be partly or wholly lost.

Trusts can also ensure funds are deposited with banks or financial institutions that are registered and regulated by the Financial Conduct Authority in the UK, the guidance continues.