Given the recent collapse of Silicon Valley Bank and Signature Bank and concern about additional bank failures, many nonprofits are rightfully concerned about their cash assets. What is the best way to protect and grow cash in the current environment?
In order to understand how best to deploy cash, we recommend performing a cash flow analysis to understand the timing and size of near term cashflows. This analysis can help nonprofits determine how much is needed in checking to maintain normal operations and how much can be shifted into higher yielding short-term investments. Not only is it important to minimize cash held in a checking account above the $250K FDIC insurance limit, but current high levels of inflation mean that cash held in a no-yield checking account is losing purchasing power. While it may not be operationally feasible for larger organizations to maintain cash below the FDIC limit, actively looking to limit potential exposure is important given what we’ve seen transpire in the banking sector.
If it is determined that your organization has excess cash that isn’t needed for operations in the next month or two, there are a plethora of options to invest the excess cash while limiting risk. Investment options include CDs, money market funds and accounts, Treasury Bills and short term bond mutual funds and Exchange Traded Funds. All are potential solutions and which investments or combination of investments make the most sense for your organization depends on the goals and time horizon of these funds. Important considerations for determining which investments to use include the yield, flexibility/liquidity, credit quality, penalties for early withdrawal, likelihood of withdrawal, volatility, time horizon, and fees. The reward for better deploying cash is significant. Current yields are at their highest level since before the Financial Crisis with Treasury bills, CDs and money market funds offering yields between 4 and 5%.
While in past years keeping large amounts in a checking account was only an FDIC insurance risk, now it also results in a significant opportunity cost in forgone interest. Through diligent review of your organization’s cash flow expectations you can protect and maximize your organization’s cash assets and better position your organization for future success.
Want to learn more? Reach out today to speak with one of our nonprofit advisers about how to safeguard your cash assets and put them to work!