Church's $1.5M Bequest Earns 3.75% — Is Inflation a Risk?

A religious congregation sitting on a $1.5 million bequest is questioning whether a 3.75% bank account rate is sufficient to preserve the gift's purchasing power over time, according to a financial advice column published by MarketWatch.

The core concern centers on inflation's corrosive effect on idle capital. With the Federal Reserve's long-run inflation target at 2%, a 3.75% nominal return may appear adequate on the surface — but after taxes, fees, and periods of elevated inflation, the real yield could narrow considerably, leaving the fund's value effectively diminished in purchasing-power terms over a multi-decade horizon.

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Financial planners generally recommend that endowments and large institutional gifts be managed under a formal investment policy statement, diversifying across asset classes such as bonds, equities, and short-duration fixed income. Keeping a sum of this magnitude entirely in a single bank deposit account exposes the congregation to reinvestment risk — the possibility that rates fall sharply when the account renews, locking the funds into a lower yield at an inopportune moment.

For faith-based organizations and nonprofits, prudent stewardship of a bequest typically involves establishing a dedicated committee, engaging a fiduciary adviser, and benchmarking performance against a blended index. Some denominations also follow the Uniform Prudent Management of Institutional Funds Act, which sets a legal standard for how nonprofits invest and spend endowment assets.

The congregation's instinct to scrutinize the arrangement reflects sound governance thinking. A gift of this scale, intended for long-term benefit, warrants a strategy that balances capital preservation, income generation, and inflation protection rather than relying solely on a single deposit rate. Continue reading at MarketWatch.com