The heavy clouds have moved in, the sky has grown gray, and the thunder of uncertainty grows louder. You need not be an economist to know that we’re in the midst of an economic storm. Over the past two years, short-term interest rates declined to record lows, sending many sailing for shelter. For example, the Federal Funds Rate has declined from a high of 6.5 percent in May 2000 to its current low of 1.25 percent on November 6, 2002—a decrease of 5.25 percent. And if that wasn’t storm enough, the already volatile stock market was sent reeling by the events of September 11, 2001. Needless to say, our economic parade has been rained on.
In this uncertain economic climate, many ministries are safely riding out the storm by following the proven principle of the seasoned sea captain: they anchor deep where they can safely ride out the storm. They adhere to proven financial principles and steer clear of the risky opportunities that can arise during the tempest. Other ministries, however, may give in to the temptation and head shoreward in search of greater returns, a risky move that could cost them dearly in the long run and jeopardize their stewardship of funds. These ministries are like boats being tossed ashore by the waves, struggling to stay afloat in a raging sea.
We’ll illustrate this point with a fictitious school that we’ll call Nautical Christian Academy. On January 1, 2001, Nautical Christian Academy charted what appeared to be a sound financial course. With $100,000 they opened a money market account that had an annual percentage yield of 5.43 percent at that time. Although this money was not needed for over 12 months, the ministry reasoned that the money market account had a good return and provided immediate access to these funds should a need for the cash arise. Over the following 11 months, their return amounted to $3,257.26, which was less than anticipated due to the declining interest rates over the period. Their average yield on this investment was 3.503 percent.
Now, had Nautical Christian Academy followed sound cash management principles and placed that same money in an 11-month certificate account, they would have earned more than $5,700 over the same period due to the guaranteed yield of 6.063 percent, which was locked in for the term.
Now more than ever, schools, churches, and other ministries should remain steady at the helm, guided by proven financial principles and policy. While the economic environment continually changes, the principles used to endure and even thrive amid change remain the same. Ministries need to avoid making impulsive decisions and must protect the funds their donors have given, even at the cost of taking a lesser return. In addition to being risky, reactionary moves are almost always unnecessary, since time and again history has shown the resilience of our nation’s economy. The attack on Pearl Harbor, the assassination of President Kennedy, and the Gulf War provide poignant examples of times when, after suffering an initial decline, the economy rebounded with remarkable resilience.
So as you can see, all is not doom and gloom. Past experience shows that ministries which hold to an investment strategy based on sound, proven financial principles are least likely to sustain loss in a volatile climate and are most likely to benefit greatly upon the economy’s recovery.
Given the current climate, your school may want to consider the various investment options available. Evangelical Christian Credit Union (ECCU) offers an array of depository accounts that can help your school achieve its return-on-investment objectives. Short-term investments are those that mature in a year or less, and there are several ways your school can benefit from these. Long-term accounts have maturity dates of greater than one year and are often used for reserve and capital campaign accounts.
Cash Liquidity
Liquidity is one of the main reasons to invest in a money market account. When a ministry organization has irregular cash inflows during a given period, a liquid short-term investment can supplement working capital imbalances. Short-term investment rates are generally indexed to the money markets or U.S. Treasury securities of less than one-year duration. ECCU offers a variety of money market accounts that take account balances into consideration for the interest rate paid on the account.
For larger deposits, ECCU offers the secured bonus money market, which earns a higher yield on balances insured to $350,000. These funds are insured to $100,000 by the National Credit Union Association (NCUA), an agency of the federal government. In addition, balances over $100,000 are insured to an additional $250,000 through American Share Insurance, the nation’s largest private insurer of credit unions. The earning power on the secured bonus money market increases to some of the most competitive rates nationally for insured savings.
Temporary Surplus Funds
Occasionally a school may receive funds for which it has no immediate use (such as additional increases in donations at Christmas). Short-term certificate accounts offer a safe and timely solution when the maturity can be matched to the use of these funds. ECCU offers certificate accounts with a maturity as short as thirty days.
Reserve/Growth Funds
As schools, churches, and other ministries grow, there will often be an intentional buildup of funds for capital expenditures, such as real-estate purchase, building construction or renovation, and reserve accounts. These funds should be deposited in long-term certificates (greater than one year) with maturity dates that align with the need to spend the funds. Certificate accounts are available with terms from one to five years and with rates determined by the amount invested in the certificate.
ECCU offers a ministry bonus certificate, which pays a premium rate to qualifying 501(c)3 nonprofit organizations for terms of six months or greater with a minimum balance of $25,000.
The following table provides general guidelines for the application of various interest-bearing depository accounts. These accounts are insured against loss of principal by the NCUA up to $100,000 at ECCU.
When it comes to maximizing short-term return, a certificate account may be a very effective option, especially after holidays when ministry accounts often swell due to additional donations. Three-, six-, or twelve-month certificates offer safe, flexible alternatives to riskier investments. Certificate accounts typically pay a better rate than money markets, making these a great way to protect funds and practice stewardship!
Account Consolidations
It is also possible to increase the yield on your school’s funds through account consolidation. When you consolidate smaller savings or money market accounts from various financial institutions into one larger account, you will enjoy higher rates for both short- and long-term investments. Also you can reduce your operational costs for managing so many accounts. This is commonly referred to as cash concentration and can be accomplished using electronic fund transfers, such as ACH (Automated Clearing House) payments and wires.
International Banking Services
ECCU serves members in all 50 states and in 100 countries around the world. These schools, churches, other ministry organizations, and missionaries all benefit from the uniquely designed products and services of ECCU. In fact, all ACSI member schools qualify for membership in ECCU. Our experience with international banking allows ECCU to meet the needs of Christian schools outside of the United States. International schools that don’t have a U.S. Employer Identification Number are able to open accounts with ECCU due to their membership with ACSI. ECCU offers a broad range of financial services to our overseas members. From assistance with currency exchange, investments, and payroll processing to checking, savings, and certificate accounts, ECCU has ministry-minded banking services to help make your work in education more productive.
EC*Web
With EC*Web online banking, the doors to ECCU are open around the clock. That means you can manage your school’s finances when it’s convenient for you. And best of all, you can do it from the comfort of your home or office—no matter where in the world that might be. Secured with 128-bit encryption, you can rest assured your funds and transactions are safe and sound. EC*Web puts you in total control of your accounts, with the ability to complete transactions right at your fingertips. Now you can perform transfers, reconcile accounts, and review activity—including deposits, withdrawals, and cleared checks—in real time with no more waiting for nightly postings or for printed monthly statements to arrive in the mail. With EC*Web you can initiate wire transfers to move funds instantaneously, on a recurring basis, or at a future date.
ACH Services
Very soon EC*Web will be enhanced to allow users to perform ACH transactions. ACH is commonly used to make and collect payments—such as tuition payments, payroll direct deposit, and vendor payments—and to move funds between financial institutions.
And perhaps most important, an ACH-secured payment program ensures the integrity and security of your account by greatly reducing the risk of errors and of lost, stolen, or forged checks. Another benefit is increased donor retention. If your school relies on contributions, ACH provides a convenient way for donors to submit their payments. In addition, ACH can actually increase the value of your donations as retention rates tend to greatly improve with the automatic electronic funds transfer.
Staff Membership
International schools may become an ECCU sponsoring member and can offer ECCU membership to your teaching staff and school administration. As member-owners of ECCU, they will have access to all the personal banking services ECCU has to offer.
Remember to anchor deep. Tying up to proven principles will help your ministry thrive during turbulent and stormy times. If you would like to speak with an ECCU specialist about how to best anchor your school’s finances, please call us at 800.634.3228, extension 1650. For international calls, please dial +1.714.671.5705. You may also email ECCU. ECCU website.
Anchor Deep Q1 and Q2 2003