Tue. Apr 13th, 2021

When a church has excess cash that it does not need for a while (i.e. money set aside for a future building program), the issue comes up regarding how to invest that money. Church leaders obviously want to maximize the interest earned until the money is needed. With bank savings accounts barely paying anything, many around a quarter of a percent, the desire for a better return is understandable.

However, the church board is required to act in good faith and exercise ordinary business care and prudence in making investment decisions. They have a fiduciary responsibility to make sure that undue risks are not taken which may put the church funds at risk of loss due to market fluctuations, etc. Even when the investment of funds is managed by a third party, a standard of care applies. Church leaders should be aware of the Uniform Prudent Management Institutional Funds Act (UPMIFA). This law has been passed by every state except Pennsylvania. Each state’s version may be slightly different, but the basic outline addresses how nonprofit organizations handle investments and the use of restricted funds.

In some states, a court order is needed to redirect restricted funds. You should be familiar with your state’s specific rules, as significant risks and penalties could apply for not following the law.

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