What Should You Do With Your Nonprofit's Operating Reserves?

July 11, 2022 - Operating reserves are vital to the health of a nonprofit. But what should you do with them until they are needed?

An operating reserve is an undesignated portion of a nonprofit’s net assets that is set aside to sustain the organization through unexpected challenges. It serves as an emergency fund, a rainy day fund, the nonprofit’s savings.

Why is it so important for a nonprofit to have an operating reserve fund? Despite careful planning, nonprofits may face unforeseen situations that could threaten the organization’s viability. Challenges like an economic downturn or a global pandemic can cause funding shortfalls, increased costs, or lost revenue for a nonprofit. Operating reserves allow an organization to continue its life-transforming work in troubled times.


Generally, nonprofits should aim to have an operating reserve amount that equals 3-6 months of their annual operating expense budget. A nonprofit seeking to build their operating reserve could do so by adopting a surplus budget, putting a percentage of each year’s excess into the operating reserve until they reach their goal amount. Once the goal is met, the balance of the operating reserve should be assessed annually.

Organizations should also create a reserve fund policy that outlines the plan for building the fund, when and how to use the funds, how quickly to replenish the funds, and where to keep or invest the money until it is needed. This reserve fund policy could be included in the organization's Investment Policy Statement (IPS) for their operating reserves. An IPS helps define the parameters and responsibilities for the management of investment pools as constituents change over time. An IPS can be simple for small institutions with minimal asset levels but should naturally evolve as an institution grows and will become more expansive and more detailed with that growth. A nonprofit with several pools of assets may require multiple investment policies, depending on the investment objectives of each pool. HighGround can work with your nonprofit to develop, review or revise your Investment Policy Statement and reserve fund policy.


How to hold or invest operating reserves until they are needed can be a tricky decision for an organization. Many nonprofits aren’t sure what they should do with the funds. It is very common, then, for those reserves to end up sitting in a traditional money market account, like checking, savings, or certificates of deposit. But is it prudent to hold them in such accounts? Are there other ways to keep the reserves safe while allowing them to grow? To effectively answer these questions, there are a few things that need to be considered first:

Time Horizon
True operating reserves will generally have a time horizon of 0-2 years, as they will likely need to be accessed within that timeframe. Many organizations lump all kinds of funds into their operating reserves though, like capital projects or payroll reserves. Each of these funds can have its own time horizon, however, and should be considered individually. If the time horizon for a particular fund is beyond two years, then consider pulling that money out of operating reserves and re-classifying it.

Risk Tolerance
Most operating reserves should have a very low risk tolerance due to the need for capital preservation. If an organization has a higher risk tolerance, it should consider splitting the funds into multiple categories and letting the time horizon of each category drive the risk profile for those funds. For example, funds with a time horizon of 0-2 years should carry a low risk profile, while funds with a time horizon of 3-5 years might carry a low-to-moderate risk profile and should be treated differently.

Liquidity is an important factor when considering how to keep or invest funds. Given that operating reserves are meant to be accessed in emergencies or unexpected situations, they often must be drawn upon quickly. Operating reserves should remain available and accessible as needs arise.

Once these key considerations have been determined, an organization can effectively decide what to do with its operating reserves. HighGround works with many churches, ministries and nonprofits that wish to grow their operating reserves while minimizing risk, and we have an investment solution for that purpose.


The HighGround Enhanced Cash Fund (ECF) is a fund vehicle that offers a low risk profile with daily liquidity, all while having greater earning potential than other liquid money market accounts. This allows for an organization’s operating reserves to earn interest income, remain available for immediate use, and maintain capital preservation - all key components to a successful operating reserve strategy.

The Enhanced Cash Fund is comprised of multiple underlying investment strategies that balance income, liquidity, and principal preservation. The primary driver of yield enhancement is through the portion of ECF invested in the HighGround Low Duration Fund. Low Duration Fund’s role is to enhance ECF’s yield above money market rates by investing in higher yielding bonds with slightly longer maturities.

How does ECF compare to certificates of deposit (CDs)? The main difference between ECF and CDs is that there is no lock-up period for investments in ECF. CDs lock up cash for a pre-defined timeframe and are subject to withdrawal penalties, should an investor need funds prior to the stated maturity date.

How does ECF compare to money-market funds and savings accounts? Money-market funds and savings accounts can sometimes require a specified minimum deposit to earn the “best” interest rates, whereas ECF has no minimums. There can also be a limited number of withdrawals per quarter or month with these funds, where ECF has no limits on transactions.

Key Considerations:

  • ECF's current yield
  • There is no minimum balance required to invest in HighGround's Enhanced Cash Fund.
  • The funds invested are not loaned out to anyone. 
  • The nonprofit does not have to invest the funds for a specified time period and can get the funds at any time.
  • The funds are immediately available to the nonprofit when requested.
  • Currently, nonprofits have placed about $240 million in the HighGround Enhanced Cash Fund.

To learn more about HighGround's Enhanced Cash Fund or how best to manage your nonprofit's operating reserves, call us today at 214.978.3300.