• Managing Operating Funds

    Posted by ROGER on May 29, 2024 at 4:16 pm

    I am the ED for a newish small nonprofit. We typically start the year with 6 months cash in a checking account that goes down to about 2-3 months midyear before yearend giving and revenues bring it back up to 6 months. I have a new board member that is recommending the we move the funds to a Vanguard money market account earning 5+%. I don’t think it good to be earning near 0% interest, but not comfortable with the suggestion given. We don’t consider these reserve funds yet. Looking for guidance toward building a policy. Thanks, Roger

    Susan replied 3 weeks ago 6 Members · 5 Replies
  • 5 Replies
  • Kate

    Member
    May 29, 2024 at 9:24 pm

    Roger,

    I had a memory of an earlier discussion on this topic and found it here. The gist of the discussion was comfort with money market funds that are liquid and invested in low risk cash type investments. Many nonprofits are earning decent extra income from their available liquid funds. https://nonprofitfinancials.org/forums/topic/reserves-are-great-to-have-how-to-invest-and-manage-them/

  • Alexa

    Member
    May 30, 2024 at 11:51 am

    You could put funds in a savings account. Some are earning 4% now. Ally bank or Relay. Easy to transfer back and forth.

  • Bill

    Member
    May 30, 2024 at 1:29 pm

    My recommendation is always to have as much cash deployed at local institutions as possible. Utilizing sweep accounts, CD’s, and local saving accounts should generate 4.5% or so,

  • David

    Member
    May 30, 2024 at 3:22 pm

    I would explore options for earning a return on any cash you know you will not need for at least 3 months. Vanguard Fund VMFXX, which is likely what your board member is suggesting, is a great option, depending on the size of the investment. Moving funds from your operating bank account to/from Vanguard may just require a phone call which is likely worth the return.

    The suggestion of exploring an interest bearing savings options with the bank you hold your operating funds is also a great option, especially if you can move funds to/from accounts online. Again, depending on the size of the investment, giving up a 1% or so for ease of cash management online may be worth it.

    In any case, idle cash should be drawing interest despite requiring a bit of adminstrative attention.

  • Susan

    Member
    May 30, 2024 at 5:58 pm

    It might be helpful to have both a reserves policy in place, and an investment policy. Those can guide your decisions about when you are in a position to invest, and how to invest (and of course can be revisited and revised if/when needed).