Fixed-Rate, Fixed-Term Investing: A Planning Tool for School Districts

Article sponsored by PFM Asset Management

School districts are navigating an environment marked by changing interest rates, evolving budget pressures, and increased expectations for responsible stewardship of public funds. At the same time, district leaders could be thinking about balancing the need for liquidity with opportunities to earn interest on funds that are not immediately needed. In this environment, fixed-rate, fixed-term investments may be one tool worth considering as part of a broader financial planning strategy.

This investment locks in an interest rate for a defined period. Unlike liquid accounts that provide daily access to funds, these investments are designed for dollars that can be set aside until a later scheduled maturity date. Some organizations utilize liquid funds alongside fixed-rate and fixed-term investments, helping to create a more structured approach to cash and investment management. For example, the Missouri Securities Investment Program (MOSIP) offers both liquid investment options and a term portfolio designed for funds that can be invested for a specified maturity period.

One potential advantage of fixed-rate investing is the ability to align investments with known cash flow needs. School districts often have obligations with predictable timelines, including payroll, debt service payments, and capital project expenditures. By matching investment maturities to anticipated expenses, districts can help ensure funds are available when needed while potentially earning interest during the holding period.

Fixed-rate investments may also support budget predictability. Because the rate of return is established at the outset, districts have improved clarity regarding expected earnings. This can make it easier to forecast interest income and incorporate those expectations into the budgeting process. In periods when interest rates are fluctuating, a fixed rate can reduce uncertainty and lessen the need to anticipate future market movements.

Another consideration is the opportunity to put certain available balances to work. If a district identifies balances that will not be needed for several months, a fixed-term investment may provide an opportunity to earn more than funds maintained solely for immediate access. However, careful planning is essential. The process typically involves evaluating the timing of revenues and expenditures, identifying excess liquidity, and considering how investment maturities may align with anticipated cash needs. Some organizations also use a laddered strategy, spreading investments across multiple maturity dates rather than committing all funds at once.

As with any investment decision, understanding liquidity needs is critical. Fixed-term investments are generally intended to be held to maturity, and early withdrawal may introduce additional considerations

or risks. For that reason, these strategies are often most effective when used as part of a disciplined, policy-driven investment program.

While no single approach is right for every district, fixed-rate, fixed-term investing can offer a useful way to align investments with future obligations, improve earnings predictability, and support long-term financial planning goals. For Missouri public entities evaluating these strategies, MOSIP offers both daily liquidity options and a fixed-rate, fixed-maturity Term portfolio that may be considered as part of an overall investment program.

By Nick Kenny, Institutional Sales & Relationship Manager, PFM Asset Management, a division of U.S. Bancorp Asset Management, Inc.

This information is for institutional investor use only, not for further distribution to retail investors, and does not represent an offer to sell or a solicitation of an offer to buy or sell any fund or other security. Investors should consider the investment objectives, risks, charges and expenses before investing in any of the Missouri Securities Investment Program's portfolios. This and other information about the Program's portfolios is available in the Program's current Information Statement, which should be read carefully before investing. A copy of the Information Statement may be obtained by calling 1-877-MY-MOSIP or is available on the Program's website at www.mosip.org. While the MOSIP Liquid and MAX Classes of the Liquid Series seek to maintain a stable net asset value of $1.00 per share and the MOSIP Term portfolio seeks to achieve a net asset value of $1.00 per share at the stated maturity, it is possible to lose money investing in the Program. An investment in the Program is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Shares of the Fund are distributed by U.S. Bancorp Investments, Inc., member FINRA (www.finra.org) and SIPC (www.sipc.org). PFM Asset Management is a division of U.S. Bancorp Asset Management, Inc., which serves as administrator and investment adviser to the Fund. U.S. Bancorp Asset Management, Inc. is a direct subsidiary of U.S. Bank N.A. and an indirect subsidiary of U.S. Bancorp. U.S. Bancorp Investments, Inc. is a subsidiary of U.S. Bancorp and affiliate of U.S. Bank N.A.