The Commission has published a report, Tell it like it is, to highlight some of the developments in the sector since 2002, when the regulator first flagged up the issue of reserves.

The report shows that the proportion of the charities with a reserves policy has increased from 27% in 2002 to 40% today. The number of months’ activity that reserves will cover has fallen, from an average of 18 months to just 12 months over the same period.

But nearly a third of charities which hold reserves still have no policy in place for their management.

Keith Hickey, chief executive of the Charity Finance Directors Group, warned charities that having a strong risk-based reserves policy is key to successful financial management. “It allows trustees to deliver their strategy confident that, if a problem arises, they have time and scope to make the best decisions,” he said. “While it’s encouraging to see this increase in the number of charities with reserve policies in place, those without should act swiftly and enhance their potential for long term sustainability and delivery.”

Andrew Hind, chief executive of the Charity Commission, said he was disappointed at the 28% of charities that still did not have a reserves policy in place. He told charities that it was in their interests “to be open and account for their reserves”.

In response, Charity Bank said charities should put their reserve funds to good use to further their mission and help other charitable causes while they are held.

“Charities have a duty to make sure that funds that they raise from donations and grants work to fulfil their missions wherever possible,” said Charity Bank chief executive Malcolm Hayday. “Putting their reserves into mission-led investments, rather than simply letting them sit idle in bank accounts, means that they can actively use their reserves to benefit good causes, while boosting their finances through earning interest, and still have the funds accessible when donations are lean.”