Cash Management for Nonprofits and Associations
Cash reserves and operating liquidity are the funds your organization relies on for day-to-day operations, near-term spending, and financial flexibility within the current fiscal year. Managing those funds well means balancing accessibility with the opportunity to earn a return consistent with their risk and liquidity profile, while also addressing considerations like FDIC coverage and coordination with your broader investment strategy.
Why Cash Management Matters for Nonprofits and Associations
Many nonprofits and associations hold significant cash balances to support day-to-day operations and current budget year spending. Managing those funds effectively means balancing liquidity and safety with the opportunity to earn a return, while also addressing considerations like FDIC coverage and alignment with your broader reserve strategy.
We actively manage cash reserve portfolios for nonprofits and associations, positioning current-budget-year cash in Treasury Bills or Treasury-only money market funds to address liquidity, yield, and safety considerations. Finance committees and staff can monitor days cash-on-hand and liquidity positions through our reporting, and cash management is coordinated with your broader reserve strategy so short-term and long-term positioning work together.
What Nonprofit Cash Management Involves
Cash management for nonprofits and associations is an active investment management service, not just a banking function. It involves constructing and monitoring a portfolio for your operating cash and current-year reserves, managing FDIC exposure, and positioning those funds appropriately for their liquidity needs and risk profile. When coordinated with your broader reserve strategy, cash management aligns the most liquid portion of your nonprofit’s reserves with the same disciplined framework applied to your longer-term investment pools.
Liquidity & Safety Coordination
Liquidity & Safety Coordination
Competitive Yield
Competitive Yield
Integration with Reserve Strategy
Integration with Reserve Strategy
How We Manage Nonprofit Cash Reserves
How operating cash and current-year reserves are positioned matters. Active cash management goes beyond selecting a bank account by constructing a dedicated portfolio, managing deposit risk, and coordinating with your broader reserve strategy and Investment Policy Statement.
Portfolio Construction
A nonprofit cash reserve portfolio is built using conservative, highly liquid instruments designed to preserve capital while generating income appropriate for funds your organization may need to access in the current budget year. This typically includes Treasury money market funds and short-duration U.S. Treasury securities. The specific composition depends on your organization’s liquidity requirements, operational spending patterns, and the guidelines established in your Investment Policy Statement. Unlike a bank savings or checking account, a managed cash portfolio is actively monitored and adjusted as conditions and your organization’s needs change.
Coordination with Your Liquidity & Spending Needs
Your organization’s cash position should reflect its actual operational spending patterns. This includes payroll cycles, vendor payment timing, seasonal revenue fluctuations, and any planned disbursements within the current fiscal year. A cash reserve portfolio is structured around these needs so that funds are accessible when required, without holding more in low-yield bank deposits than your near-term operations call for. Many finance committees track this using metrics like days cash-on-hand, which measures how many days an organization could continue operating using only its available liquid assets.
Coordination with Your Reserve Strategy
Cash management should function as part of your broader reserve strategy, not independently from it. Within a purpose-driven reserve framework, operating checking cash and current-year cash reserves represent the most liquid categories. When cash positioning is considered separately from your longer-term investments, the two can work at cross-purposes. For example, an organization may hold excess cash in low-yield bank accounts while maintaining a longer-term portfolio that could be more appropriately sized. Coordinating cash management with your reserve strategy and Investment Policy Statement helps align all of your reserves around the same financial objectives.
FDIC and Deposit Risk
FDIC insurance is generally capped at $250,000 per depositor per bank. Operating checking balances and cash reserves held at the same institution are combined for FDIC purposes, which means nonprofits and associations with significant operating balances may unintentionally leave substantial amounts uninsured. This is one of the most common risks in nonprofit cash management. Short-duration Treasury securities are backed by the full faith and credit of the U.S. government and are not subject to per-depositor FDIC limits, which is why we use them to manage larger operating balances. Understanding your organization’s deposit exposure is a foundational step in any cash management review.
When Operating Cash Should Be Repositioned
There are several signals that suggest a nonprofit or association’s cash position may need to be reevaluated. These include operating balances that consistently exceed near-term spending needs, deposits at a single bank that exceed FDIC limits, cash holdings that have grown over time without a formal policy for how they should be managed, or a disconnect between how much is held in cash and what your reserve strategy calls for. Repositioning does not mean reducing liquidity. It means moving funds that are not needed for immediate operations into instruments that are still highly liquid but more appropriately aligned with their role in your overall reserve structure.
Knowledge is Meant to Be Shared
Raffa Insights & Resources
Is Your Investment Benchmark Doing Its Job? A Guide for Nonprofits and Associations
Sample Investment Policy Statement
Download our Sample Investment Policy Statement to use as a reference point when evaluating your own policy or starting the conversation with your board.
What's Normal For Nonprofit Reserves?
Learn how to think about reserve structure, investment allocation, and what peer benchmarking data can tell you about where your organization stands.
FAQs
What is days cash on hand and how do nonprofits calculate it?
Days cash on hand is a liquidity metric that measures how many days a nonprofit or association could continue operating using only its available liquid assets. It is calculated by dividing total unrestricted cash and liquid investments by average daily operating expenses. Finance committees use days cash on hand alongside other liquidity metrics to evaluate whether their organization’s cash position is appropriate for its spending patterns and risk profile.
To see how your organization’s days cash on hand compares to your peers, check out Raffa’s Study on Nonprofit Investing (SONI) Peer Benchmarking Dashboard.
Should nonprofit operating reserves be invested or kept in a bank account?
Operating cash needed for immediate transactions should remain in a bank checking account. Beyond that, many nonprofits and associations can position additional cash reserves in conservative, liquid instruments such as Treasury money market funds or short-duration U.S. Treasury securities. These options are designed to maintain accessibility, and they are not subject to per-depositor FDIC limits.
What investment options are appropriate for nonprofit operating reserves?
Nonprofit and association cash reserve portfolios are typically invested in conservative, highly liquid instruments such as Treasury money market funds and short-duration U.S. Treasury securities. The specific approach depends on your organization’s liquidity needs, operational spending patterns, and the guidelines established in your Investment Policy Statement.
Should nonprofits use multiple banks for FDIC coverage?
Some nonprofits and associations spread deposits across multiple banks to stay within the $250,000 per-depositor FDIC limit at each institution. This can work, but it adds administrative complexity. An alternative approach is to position operating cash reserves in short-duration Treasury securities, which are backed by the full faith and credit of the U.S. government and are not subject to per-depositor limits. This can simplify cash management while addressing safety concerns.
What are the risks of holding too much cash in a nonprofit bank account?
Nonprofits and associations that hold large operating balances in bank accounts may face several risks. Deposits above $250,000 at a single bank exceed FDIC insurance limits, leaving a portion of the balance uninsured. Cash held in standard checking or savings accounts may also lose purchasing power over time relative to inflation. Additionally, funds that sit in low-yield deposits when they could be positioned in liquid, conservative instruments represent an opportunity cost to the organization. A cash management review can help your finance committee evaluate whether your organization’s cash position is appropriately structured.
What is a nonprofit cash management policy?
A nonprofit cash management policy is a document that defines how your organization manages its operating cash and current-year reserves, including how much liquidity to maintain, where funds are held, and how deposit risk is addressed. For nonprofits and associations, a cash management policy typically works alongside your Investment Policy Statement and reserve policy to provide a complete framework for how all of your organization’s liquid assets are managed and governed.
How should a nonprofit finance committee oversee operating cash?
A nonprofit or association finance committee should review the organization’s cash position regularly as part of its overall fiduciary oversight. This includes understanding how much is held in bank deposits versus managed instruments, whether balances exceed FDIC limits, whether the cash position aligns with the organization’s reserve strategy, and whether operating reserves are positioned appropriately for the organization’s liquidity needs. Cash reserve reporting should be included alongside your longer-term investment reporting so your committee has visibility across all reserve categories.