3 Tips for Protecting Nonprofit Operating Reserves

There are three things you should be doing to protect your cash and turn it into an opportunity. The current interest rates are spectacular. Not only do we have high interest rates, but we also have a lot of nonprofits that are sitting on large reserves. This is quite a mystery to me, but it seems as though there's a couple of factors that have led to this unusual situation. First, there were lots of relief funds that nonprofits received, such as PPP funds, which allowed them to pay salaries and free up other cash. In addition, giving was very generous during those seasons when people weren't traveling as much. As a result, we're now seeing a lot of nonprofits with excess cash. So today I want to share what you can be doing to protect that cash and turn it into an opportunity.

1. Manage FDIC Insurance Risk

       Look at your bank balances. Do you have more than $250,000 at any one bank? Well, that is the FDIC insurance level. And while most of the banks I've ever banked with haven't failed, there were a few banks last year that did fail. With this in mind, I definitely think it's prudent of us, from a stewardship perspective, to make sure that we're managing this FDIC insurance risk.

2. Consider Your CDARS and ICS Options

      If you've got over $250,000, go to your bank and ask them this question:

 “Do you offer CDARS or ICS accounts?” 

     CDARS (Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep) are tools that allow banks to offer their customers a way to diversify their deposits across a network of banks in order to keep them FDIC insured while continuing to earn interest. These accounts are spectacular options for nonprofits with more than $250,000 in cash. I've seen interest rates with local banks of 3.25% to 4.5%, and even some rates as high as 4.75%. 

     Ask your bank if they have these tools available. Deciding which one to use depends on the time horizon for the funds in question. If you know the timeframe and you're not going to need those funds for 9-12 months, you can use a CDARS tool, which is a CD based tool with a specific time horizon. If you don't know the timeline on those funds or if your time horizon is shorter than those CD based interest rates, then move to the ICS option. 

3. Bank Where You Have Both Security and Great Rates

If your bank doesn't have these offerings, you probably need to consider a second banking relationship or even an investment firm that can help you to achieve these two things- Secure protection through FDIC insurance and optimal yields from the best interest rate that you can possibly get while maintaining the liquidity that you need.

     If you’d like some additional help with investment decisions or any other aspect of nonprofit finance, I’d love to talk on-on-one about your specific situation. You can book a strategic consult with me here. I look forward to serving you!