Having successfully only taken on seven men, the National Sperm Bank (NSB) said it was unable to fund further donor recruitment.
It was set up with a government grant in October 2014 to tackle the shortage of donors, particularly at NHS clinics.
The Department of Health say the NSB's demise will not affect people's access to safe sperm donation services. A shortage of donors often drives patients overseas or to unregistered services.
‘Demand for sperm donations in the UK has steadily grown and hundreds of new donors, who are compensated Ģ35 per clinic visit, are registered each year.’
Based in Birmingham, the NSB received a one-off Ģ77,000 grant from the Department of Health to get up and running. The aim was for the bank to be financially self-sufficient within one year.
It was a joint project run by the charity the National Gamete Donation Trust and Birmingham Fertility Centre, a unit at Birmingham Women's Hospital.
In total, eight sperm donors were recruited since it launched, with one later dropping out.
But with the full donor process taking up to 18 months, the bank was unable to generate income in the second year.
Charles Lister, chair of the National Gamete Donation Trust said: "One of the lessons learned from running the NSB is that the level of ongoing investment required for successful donor recruitment is beyond the resources of a small charity like the NGDT."
Laura Spoelstra, who left her role as chief executive of the NGDT, said, "Once you have a donor at least 70% along the process, you have income. It's a business model. It required a business way of thinking. Once you know you've got income in the pipeline, you can use that to offset costs."
The Human Fertilisation and Embryology Authority estimate that 2,000 children are born every year in the UK using donated eggs, sperm or embryos. The most recent data from 2014, shows 85 licensed UK clinics - both private and NHS - performing sperm donor insemination.
But the majority of licensed clinics are based in London and the south east of England and treatment can be expensive. The cost of donor sperm from the UK's largest private sperm bank, the London Sperm Bank, is currently Ģ950. The National Sperm Bank was proposing to charge Ģ300 per insemination.
Prof Allan Pacey, a spokesman for the British Fertility Society, believes there is still a need for a national sperm bank.
"It doesn't have to be bricks and mortar, it could be a network. We need better coordination and this just highlights how expensive it's going to be."
Mr Lister said the NSB had demonstrated that with targeted information, "more men are willing to become donors and give the precious gift of life".
He said the NGDT would continue to focus on raising awareness about the need for more UK donors.
Following a change in the law, all children conceived as the result of sperm donation on or after 1 April 2005, have the right to know the identity of their father when they turn 18. But a donor is not the legal parent and is not named on a birth certificate.
The first donations from the NSB will be released shortly by Birmingham Women's Fertility Centre to clinics across the UK.
The centre has its own sperm bank, which will continue recruiting donors.
A spokeswoman for the centre said: "We fully understand and support the decision made by NGDT."
In a statement, the Department of Health said: "We gave a one-off start-up grant to help set up the National Sperm Bank, and while the number of donations have not been sufficient to support it continuing to seek new donors, this will have no impact on people being able to access safe egg and sperm donation services."