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Nonprofit Opportunity | Invest Your Cash!

best practices board funding Jul 28, 2022

Why Cd’s May Be The Best Investment For Your Nonprofit!

We’re all feeling it—inflation! Pain at the pump, pain at the grocery store, interest rate hikes by the federal reserve bank. Nonprofits are impacted in these ways, but also because the cost of operating ministries is rising while the pressure to increase your staff's pay is greater than it’s ever been.  And then there’s the concern about how all of this is going to impact your funding or donations.

Well, not all is lost. Some good things are still happening.  With the increase in interest rates some fresh opportunities arise. You may be wondering, what exactly does that mean for nonprofits?


The Good News For Nonprofits

As a nonprofit, you should have three to six months for an emergency fund/operating reserve set aside.

Think of that money set aside as insurance! You don't want to invest in risky investments such as the stock market, where the market values can easily change overnight. Chances are you've been keeping that money in your bank account as liquid or accessible cash.


An unexpected opportunity

Certificate of Deposit (CD) rates have been embarrassingly low, close to zero, so they haven't been worth it until now. Times are changing, and now is the perfect time to talk to your bank about opening a CD. 


Important Takeaways:

The average rates are 2% and climbing. So start watching those rates closely and start the conversation with your bank. You want to choose a low-risk bank if possible, which means one that is FDIC insured and has solid rating.


Pro Tip:

Work with the bank you already have relationships with, or even banks local to the community, both are great starting points.


How To Get the Ball Rolling With Your Investments in CD’s

I always encourage nonprofits to spread their money around; you don't want to put all your eggs in one basket! $250,000 is the FDIC insurance limit. If you have more than that to invest, I'd consider CDs at a couple of different banks.

Also remember, don't put all the money on the same time horizon. CDs typically come in one-year maturities, but you could also consider three-month or six-month maturities for a lower interest rate. Staggering them is another possibility: you would put $150,000 into a six-month maturity and place the other $100,000 into a one-year maturity—this all depends on your cash flow needs.

Let me also mention that in doing this, you need to refer to your nonprofits bylaws, policies and procedures manual or anywhere you have an investment policy.

Be sure you're honoring that policy and expectations of approvals and board authorization for these investments.


Final Tip:

Another option is to engage board members in a discussion about the extra cash and your plans for investments in something that's low risk.


I hope you found this article helpful and use it as a reference for your investment journey!

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