Restricted, unrestricted and designated funds explained

If you help run a faith-based organisation, you'll have come across the idea that not all money is the same. A building repair appeal, the weekly offering and a legacy left in a will may all sit in the same bank account — but in your accounts they're treated very differently.

Getting this right matters. Charity law requires you to spend money in line with the wishes of the people who gave it, and your accounts need to show that you have. Here's what the main fund types mean.

Unrestricted funds

Unrestricted funds are gifts your organisation can use for any of its purposes. Most general giving falls into this category. Trustees can decide how best to use these funds to further the mission.

Restricted funds

Restricted funds are given for a specific purpose, and you're legally required to use them only for that purpose. If you launch an appeal for a new roof, the money raised can only be spent on the roof — not on general running costs, however pressing those might be.

Restricted funds need to be tracked separately and reported on, so you can show each one has been used as the donor intended.

Designated funds

Designated funds are unrestricted funds that the trustees have chosen to set aside for a particular purpose — for example, building up a reserve for future repairs. Because the restriction is self-imposed rather than set by a donor, trustees can change their mind and release the money back to general funds if circumstances change.

Endowment funds

Some organisations also hold endowment funds — capital that's meant to be kept rather than spent, often with only the income available to use. These are less common but bring their own reporting requirements.

Keeping it straight

A few habits make all of this much easier:

• Record the purpose of significant gifts at the point you receive them.
• Keep restricted appeals clearly separated in your bookkeeping from day one.
• Review your designated funds regularly, so they still reflect the trustees' intentions.

Done well, fund accounting isn't just a compliance exercise — it's how you demonstrate good stewardship to your members, donors and regulator.

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This article is general information, not advice. The right treatment can depend on your circumstances and your governing document. If you'd like a hand, talk to us about your accounts or get in touch.