How Churches Can Leverage Higher Interest Rates

Higher interest rates offer churches an opportunity to adopt new cash- and debt-management strategies.

In an era of higher interest rates, it is essential for churches to adopt new cash- and debt-management strategies. 

Seek an increase in savings, money market interest rates

A good first step for churches is to request an increase in the interest rate on their bank’s savings or money market accounts.

By negotiating better rates, churches can see higher yields in support of their mission. 

Beyond that, reassessing cash management strategies is key when interest rates are high.

Get strategic about cashflow

One effective approach is to redirect cash held in an operating account to savings or money market accounts.

Try to place all cash not needed to pay bills in the next 14-30 days into accounts that gain a higher interest rate. Strategically managing cash flow means a church can strike a balance between accessible funds for day-to-day expenses and maximizing the interest earned on their reserves.

Pick up a copy of “Church Finance: The Church Leader’s Guide to Financial Operations,” today at the Church Law & Tax store.

Beef up reserves

Churches looking to build up reserves for future projects should consider investing in bonds or bond mutual funds.

The Federal Deposit Insurance Corporation (FDIC) insures deposits of up to $250,000 per depositor, per insured bank.

If the church leaves its cash reserves in one bank, though, it exposes them to risk without the benefit of a higher potential interest rate (banks do not typically pay high interest on cash savings). Instead, investing in bonds or bond mutual funds enables the church to possess investments with a low risk profile but higher returns than cash.  

Bonds typically offer higher interest rates compared to traditional savings accounts, making them attractive investment vehicles.

By carefully selecting bonds based on risk tolerance and investment objectives, churches can secure steady income streams and potentially grow their money to keep up with the rising cost of construction.

Before investing in bonds, be sure you have your board write an investment policy with the advice of a financial professional.

Higher interest rates and debt paydowns

Some churches enter swap agreements with financial institutions—contractual arrangements that typically exchange cash flow or liabilities from two different financial instruments.

For churches with existing swap agreements on their loans, higher interest rates may present an opportunity to pay down debt. Analyze the terms of the swap agreement and consider reducing the outstanding debt if it is advantageous.

In some cases, churches may find themselves in a favorable position, allowing them to receive payments from investors when paying down their debts.  

Again, though, be sure to seek professional advice before moving forward with such a strategy. 

A word of caution

Though higher interest rates may be advantageous for certain financial strategies, it is crucial for churches to exercise caution when taking on additional debt. Rather than focusing on increasing debt, it is advisable to undertake projects that align with the congregation’s regular patterns of giving. 

Capitalizing on higher interest rates will require some strategic thinking and execution. However, it is essential to remember that every church’s financial situation is unique, and professional advice is crucial for tailoring strategies to specific needs. 

Tim Samuel is a CPA and the chief financial officer of Bridgeway Community Church, a nondenominational, multicultural church in Columbia, Maryland, that draws more than 4,000 people each week.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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