Is Inflation Quietly Eating Into Your Church's Bequest?

A church with a $1.5 million bequest sitting in a savings account at 3.75% is looking at a healthy-sounding number. On that balance, the interest comes to about $56,000 a year before fees and taxes. The more useful question is how much of that income still buys something once prices rise.

The standard check is the real return, which is the nominal rate minus inflation. The precise version divides one plus the nominal rate by one plus inflation, then subtracts one. If inflation runs at 3 percent, the real return is roughly 0.75 percent, or about $11,000 a year on $1.5 million. The fund is growing, but only modestly in purchasing terms. If inflation rises to 4 percent, the real return drops slightly below zero. The balance still climbs on the statement, yet the money buys a little less each year. Inflation figures come from national statistics offices and move from month to month, so trustees should use the most recent reading rather than a rate from memory.

A savings yield is also not a locked-in promise. Banks adjust deposit rates as central bank policy changes, so 3.75% could fall within a few months. That creates two separate risks for a gift meant to support ministry for decades. Inflation erodes what the principal can buy, and falling rates shrink the income it throws off. Cash has a real strength, which is that its nominal value does not swing with markets. It is a poor long-term store of value, though, and holding a large sum in it for years is not automatically the prudent choice.

Deposit insurance deserves a look too. In the United States, standard FDIC coverage is $250,000 per depositor, per insured bank, per ownership category. A $1.5 million balance at a single bank would largely exceed that limit. Treasurers should confirm how much of the money is actually insured and whether it can be spread across institutions or placed in a program that divides deposits among several banks.

Many boards respond by writing an investment policy statement. The document sets the time horizon, a spending rule, the acceptable level of risk, and how the fund should be reviewed. Commonly cited endowment practice aims to spend a sustainable share of the fund each year, often in the range of 4 to 5 percent, while keeping the fund's value ahead of inflation over the long run. A mix of high-quality bonds, equities, and a cash reserve for near-term needs is a frequent structure. In many US states, the Uniform Prudent Management of Institutional Funds Act provides the legal standard for how charitable funds should be managed, and it emphasizes diversification and the purposes of the gift. Whatever allocation a board chooses, it should review it at least once a year and record its reasoning in the minutes.

The bottom line is that 3.75% is not a problem in itself. It becomes one only if the after-inflation, after-fee return falls short of what the fund needs to do, and if the board has no written plan for the money. A church that can explain its time horizon, its spending needs, and why it holds each part of the fund is in a far stronger position than one that simply keeps the balance where it was deposited.