Cash Management Strategies for Nonprofits
Effective cash management is crucial for nonprofits to ensure financial stability and maximize the impact of their resources. At Infinite Giving, we offer various cash management strategies to help you manage your funds efficiently while balancing liquidity and risk.
This article will explore different cash management options, including cash vaults (high-yield savings accounts), treasury bills, and money market mutual funds, highlighting the liquidity and risk associated with each.
1. Cash Vault (High-Yield Savings Account)
Overview: A cash vault, also known as a high-yield savings account or cash sweep program, offers a secure and flexible option for managing your nonprofit's funds. At Infinite Giving, our cash vault provides an Annual Percentage Yield (APY) of 3% and up to $5 million in FDIC coverage.
How It Works:
Deposit Funds: Your funds are deposited into the high-yield savings account.
Earn Interest: Earn a competitive interest rate on your deposits, which compounds daily and is paid out monthly.
FDIC Coverage: Your deposits are insured up to $5 million, providing peace of mind and security.
Liquidity:
High Liquidity: Funds can be easily accessed and withdrawn, making this option ideal for short-term cash needs and operational expenses. You can transfer funds in and out of your account easily through the dashboard within 1-2 days.
Risk:
Low Risk: With FDIC insurance up to $5 million, your funds are protected against bank failures, ensuring a low-risk investment.
2. Treasury Bills (T-Bills)
Overview: Treasury bills are short-term debt securities issued by the U.S. government. They are considered one of the safest investments available, offering a reliable way to preserve capital while earning interest.
How It Works:
Purchase at Discount: T-bills are sold at a discount to their face value.
Maturity: Upon maturity, the government pays you the full face value of the T-bill.
Interest: The difference between the purchase price and the face value represents the interest earned.
Liquidity:
Moderate Liquidity: T-bills can be sold before maturity in the secondary market, but they are best suited for funds that can be held until maturity, typically ranging from a few days to one year. At Infinite Giving, we typically purchase 13 week treasury bills. You can withdraw funds within 5 business days easily from your Infinite Giving dashboard.
Risk:
Very Low Risk: Backed by the full faith and credit of the U.S. government, T-bills carry minimal risk, making them a safe investment choice.
3. Money Market Mutual Funds
Overview: Money market mutual funds invest in short-term, high-quality debt securities, such as commercial paper, certificates of deposit, and U.S. Treasury securities. They offer higher returns than traditional savings accounts while maintaining liquidity.
How It Works:
Invest in Securities: The fund pools money from investors to purchase a diversified portfolio of short-term debt instruments.
Earn Dividends: Investors earn dividends from the interest and income generated by the fund's holdings, typically paid monthly.
Liquidity:
High Liquidity: Shares in money market mutual funds can be easily bought and sold, providing quick access to your funds. You can withdraw funds within 2 business days easily from your Infinite Giving dashboard.
Risk:
Low to Moderate Risk: While generally safe, money market mutual funds are not FDIC-insured, and their value can fluctuate based on market conditions. However, they are protected by SIPC insurance up to $500K.
Summary of Options
Choosing the right cash management strategy for your nonprofit depends on your organization's liquidity needs and risk tolerance. Here's a quick summary:
Cash Vault (High-Yield Savings Account): Offers high liquidity and low risk with 3% APY and up to $5 million in FDIC coverage.
Treasury Bills: Provide very low risk and moderate liquidity, ideal for preserving capital over short-term periods.
Money Market Mutual Funds: Offer high liquidity and low to moderate risk, suitable for earning higher returns on short-term investments.
By understanding the characteristics and benefits of each option, you can make informed decisions to optimize your nonprofit's cash management. At Infinite Giving, we're here to help you navigate these choices and implement strategies that align with your financial goals.
For more information or personalized assistance, please contact Infinite Giving Support or visit our Help Center.