The investment will be a 10-year subordinated loan: for the first five years, Charity Bank will be able to treat it fully as capital and use it to raise deposits, which will allow more on-lending to customers.
Two years ago, Barclays made an equity investment of £500,000 in Charity Bank.
"We have a good relationship with the charities and financial inclusion teams at Barclays," said Malcolm Hayday, chief executive of Charity Bank.
"This is the largest subordinated loan we have taken. It demonstrates that we are moving out of corporate social responsibility territory to form proper banking relationships. Barclays sees this as a commercial opportunity."
Mike Stone, head of Barclays' charities team, said: "Where once the Barclays charitable funds subsidised a loan to Charity Bank, this latest investment will be structured on a commercial basis."
The documentation for the loan was drawn up by law company Linklaters as part of its community investment programme. Barclays will receive a return of 4 per cent a year over 10 years.
Stone said that Barclays' investment should send a "positive and timely message" to the community finance sector.
However, Peter Grant, senior visiting fellow at Cass Business School's Centre for Charity Effectiveness, warned that funders should not stop making direct donations to charities.
"This investment is encouraging because it indicates that the third sector is able to intervene in a wider sense than it has done traditionally," Grant said. "But the slightly worrying thing is that funders do follow trends and, if everyone plunges in that direction, there will be problems.
"A lot of charities will always require subsidy," he added. "If some significant amounts of funding are put into the loans and contracting basket and not the grants basket, those charities will find it difficult to get funding."
Barclays is to invest £1m in Charity Bank.
The investment will be a 10-year subordinated loan.
In 2004, Barclays made a £500,000 equity investment in Charity
A return of 4 per cent a year will go to Barclays.
Documentation for the loan was drawn up by Linklaters.