What to consider when choosing where to place your church’s deposits and reserves…

Being a key decision maker in wisely stewarding your church’s reserves is a great responsibility.  Whether you have a few hundred pounds or tens of thousands, your role is most likely to assist your fellow elders or trustees in shaping a policy which demonstrates that you’ve given the matter appropriate, careful thought.  We asked the head of the Kingdom Bank savings team, Garry Chulan, for his two-step advice on how to make wise decisions about the use of your church’s finances...

Whatever your church funds currently look like, having a cash deposits policy is really important. 

At times a church will have more money than it needs simply to run its day-to-day activities, for example when it receives a legacy. 

So, even if you currently feel you’re just living hand-to-mouth, it’s good stewardship to be prepared.

Step 1 – Plan ahead…

Having ‘a policy’ sounds very formal, but in reality simply means having a plan which sets out what you will do in different situations.  For most churches this is quite simple, for example:

1. Decide on the ‘base reserves level’ you need to manage weekly and monthly income and expenditure peaks and troughs – this might be a figure of around two months’ charitable expenditure.
2. You will have a reserves policy (as required by the Charity Commission), and typically that policy might stipulate a target ‘reserves policy threshold’ of, say, six months’ charitable expenditure – above this threshold are your ‘excess reserves’.
3. The amount between the base reserves level and the reserves policy threshold is your ‘running reserves’ for occasional or unplanned costs.

So, for a church with annual expenditure of £60,000, you might expect to have a base reserves level of £12,000, a reserves policy threshold of £30,000, and so running reserves of £18,000.

The numbers above are indicative and you should determine your own thresholds. You may also want the policy to cover ‘project reserves’ – money set aside, often in a restricted fund, for a specific, future project such as building development.

Step 2: Consider Access, Interest, Risk and Ethics

Having broken down your cash reserves into their constituent elements, you now need to consider your priorities for where these reserves should be kept.   

Balancing Access and Interest

Cash accessibility is vitally important for day-to-day running of the church, and this is almost always achieved via the church’s current account, typically with a high street bank. 

No notice will be required to pay bills, but it’s unlikely that you will receive any interest. 

You will need your base level reserves in this current account, but leaving your running reserves and excess reserves in an account providing no interest is not great stewardship.

By tying up your funds in an account with a longer notice period, you are enabling a bank to use that money for other purposes and so, in return, the bank will pay you interest. 

You clearly need to consider how much notice you might need to withdraw the funds. 

Typically, you might decide that you can tie up the church’s running reserves with a notice period of a month, and your excess reserves with a notice period of three months. 

For this reason, at Kingdom Bank we offer a ‘Gospel Partner’ account with 32 days’ notice and a ‘Church & Charity Reserve’ account with 90 days’ notice. 

Each is designed to receive money from and return money to your regular bank current account. 

For your project reserves you may be in a position to tie up the funds for longer – at Kingdom Bank we find that churches often use our ‘Church & Charity Reserve’ account or a ‘Savings Bond’ – our bonds have fixed terms of 6, 12, 24 or 36 months.

Risk

Most UK churches do not need to be overly concerned about the risk of holding cash in a bank. 

The Financial Services Compensation Scheme (‘FSCS’) guarantees deposits for individuals and small organisations up to £85k each, paying out should the bank fail. 

However, if you have more than £85k in a single bank, you should consider reducing your risk exposure by spreading the cash to other banks, benefitting from the guarantee provided on each account. 

Some churches with long-term substantial reserves consider non-cash investments, however this enters a whole different area of risk and should be given careful thought.  

Ethics

Finally, as a decision maker with regards to funds, you will need to consider the ethics of the institution holding your money.

Much has been written over the past few years on the ethics of various banks, and at the heart of this is where a bank will invest the cash you place with them on deposit. 

This is often neglected by churches, and a number of treasurers have been caught out by challenges raised by astute members at the annual church meeting!

The Bible speaks of wisdom and generosity when stewarding finances, and at Kingdom Bank the concept of ethical banking and gospel partnership is at the heart of our vision. 

The vast majority of the money placed with us provides churches and Christian ministers with mortgages for property projects. 

Our aim is to be facilitating gospel partnership as the deposits entrusted to us help churches grow and develop at the heart of their communities.

Indeed, we’re so committed to this concept that our Gospel Partner account explicitly sets out to offer a slightly lower interest rate than similar notice accounts in order that we can lend as affordably as we can to local churches, helping them plant, refurbish and provide housing for their ministers.

For more information about Kingdom Bank’s deposit accounts click HERE.