In the current near-zero interest rate environment, most banking institutions aren’t providing any interest on their corporate banking accounts. Worse still, if an organization is willing to lock up reserves into short-term CDs at these same banks, they are only able to earn 0.25% at most. With interest rates being so low and the uncertainty of recent events, many organizations have been very conservative with the use of their operating reserves; it may seem prudent to keep large balances within these bank operating accounts.

However, not taking proactive action with these excess bank operating reserves results in “moving backwards by standing still.” Not only is the organization losing ground due to inflation and the increase of budgets over time, but they are potentially leaving up to $14,000 of lost income per year on the table. Many organizations are struggling in the current environment to find ways to increase their cash flow and help balance their budgets; reevaluating operating reserves can help mitigate these issues.

RTD Financial works with an organization’s Executive Director, Treasurer, and/or Finance Committee to first review a cash flow analysis and determine how much of the current operating reserves will be needed over any one to three-month period.  Based on the unique needs of each organization, bank reserves over this amount can potentially then be invested elsewhere to earn higher interest rates.  In the current interest rate environment, this can best be achieved by using a third-party premium money market provider. To ensure availability of cash flow to pay current expenses, an electronic link is established between these accounts and the bank operating account, allowing a seamless transfer of funds when needed, within 1-2 business days.

Third-Party Premium Money Market Providers

Many are familiar with consumer versions of premium money market offerings, however most of these consumer versions are unavailable for corporate accounts. In addition, they have low FDIC insurance limitations that like the bank operating account, make them unattractive for organizations.  However, new vendors have entered the marketplace, offering a similar service to organizations.

These new offerings are similar in concept to the premium money market consumer versions, but some offer additional valuable features that make them superior for organizations.  These features include many multiples of individual bank FDIC insurance coverage limits, automatic replenishing levels to their bank operating account within 1 business day, and sleek online dashboards, ensuring all interested parties have real-time access to monitor these cash account levels.

Next Steps

Given the current banking environment for organizations, we believe there is clearly room for improvement in maximizing bank operating cash reserves.  The greater the level of operating reserves, the greater the need for ensuring FDIC coverage, and the greater the potential for generating additional income; two reasons for making prudent changes in this area.

At RTD, the strategies discussed above are provided on a complimentary basis as part of our investment management offering for organizations. However, the increased earnings realized through efficient structuring of your organization’s excess operating reserves could easily meet or exceed our overall management fee as part of a comprehensive fiduciary advisory relationship.

Please contact us if you’d like to learn more about all the ways we can help your organization maximize its resources, while minimizing risks, during these challenging and uncertain times.