Jayme F. Moore, CPA
Vice President & Director
Nonprofit organizations looking for new sources of income may find it in their own treasury in the form of excess cash.
If your organization determines it has excess cash that will not be needed for operations in the near future, there are several options to invest it while limiting risk. Investment options include certificates of deposit (CDs), money market funds and accounts, treasury bills and other short-term, liquid investments.
The board or investment committee should determine which types of investments make the most sense based on its goals and the needs of the organization.
Certain factors to consider include your current yield on bank deposits, flexibility, liquidity, credit quality, penalties for early withdrawal likelihood of withdrawal, volatility, desired term and fees.
Another factor to consider is the extent to which your bank deposits exceed the Federal Deposit Insurance Corporation (FDIC) limit of $250,000 in any one financial institution. Keeping a significant amount of funds in an account with one bank can expose an organization to FDIC insurance risk, as we have seen recently with the failure of Silicon Valley Bank. With interest rates higher than they have been for many years, it also results in a significant opportunity cost in forgone income to the organization.
In today’s market, the reward for investing in limited risk investments can be significant. Most financial institutions are offering attractive rates for money markets and certificates of deposit, which are short-term investments, which are a great option if the organization does not want to tie up funds for a long period of time.
Your board has a fiduciary responsibility to protect the assets of your nonprofit while ensuring advancement of the nonprofit’s mission. Any investment decisions should be made prudently, and the board should adopt an investment policy that defines the organization’s investment objectives and risk tolerance. The performance of all investments, even that of safe products such as money markets and CDs, should be monitored regularly. Your board should strongly consider creating an investment committee to oversee all investments and ensure that board policies are followed.
Through diligent review of your organization’s cash flow expectations and prudent investment decisions, you can protect and maximize your organization’s assets and better position your organization for financial stability.
Contact your GT Reilly advisor for a discussion about whether investing in low-risk instruments is an option for your nonprofit.
