Charity bond gives income – and the feelgood factor

The investment column that makes the most of your money

IN TODAY’S ultra-low interest rate environment, where savings accounts pay out next to nothing, solid investments offering a decent annual income can seem very attractive. And when they come with an element of philanthropy, the appeal becomes even greater – at least for ethically minded investors.

Charities Aid Foundation, one of the UK’s top ten charities, is providing just that opportunity. It has launched a ten-year bond, offering 5 per cent annual interest, through the Retail Charity Bonds platform. This initiative helps charities raise money from ethical investors by issuing bonds.

CAF is a slightly unusual charity. It does not give money to specific causes itself, but instead helps individuals and companies to donate to charity flexibly and efficiently, and helps charities to manage their money. Working with 50,000 charities, 250,000 donors and 3,000 companies, including two-thirds of the FTSE100, CAF channels more than £450million to charities each year.

The charity is particularly useful for businesses and wealthy people. It operates the most popular Give As You Earn scheme in the UK, under which employees can give money to charity tax-effectively. It also advises companies on how best to make corporate donations and allows rich individuals to park money in its bank account if they have a particularly good year and want to set aside some cash for charity without donating it straight away.

UK philanthropists are also rather more low-key than their American counterparts and CAF allows them to donate money anonymously.

Some less well-off people like to save money regularly so they have a lump sum ready for when a cause emerges that they feel particularly strongly about. CAF offers this facility too. And for charities, it provides cheap banking services and the facility to accept money online.

THE charity is hoping to raise £15million to £20million via its bond, though it may raise slightly more if there is strong demand. The bonds will be tradable via the Stock Exchange’s retail bond market, so investors can buy and sell them at any time until they mature. The minimum investment is £500 and investors can subscribe for them until April 6 through a range of stockbrokers.

CAF chief executive John Low, who previously held the same position at the Royal National Institute for Deaf People after a career as a technology entrepreneur, intends to use the cash to upgrade the organisation’s IT systems and improve its marketing to encourage younger people to give money to worthy causes.

Because CAF lends money to other charities, following changes to bank regulations it needs to have more cash on its balance sheet so it can help more of the organisations it supports.

For investors, the two most important questions are these: does CAF have sufficient cash to pay the annual interest bill and will it have enough money in 2026 to repay the bonds so they get their money back. Barring exceptional circumstances, the answer is yes.

The charity is paid interest when it lends to other charities and earns money for offering advice to companies and the wealthy on how and when to give.

Investors should also take comfort from the Stock Exchange’s stamp of approval on these bonds, while the entire transaction is being managed by individuals at broking firm Canaccord Genuity, who have been in the bond market for decades.

Midas: The CAF deal ticks several boxes, particularly in the cur- rent climate. It offers a decent annual return, the charity has been around for almost a century and investors can feel good even as they earn an income.

To trade on: Retail Bond Market Ticker: CAF1 Contact: cafonline.org or 0300 012 3286