Investment Options

As a part of our work, we’ve noticed an uptick of questions on investment options as folks are thinking about ways to maximize their income in this time of shifting funder support.

While we’re not investment advisors, we wanted to share a high-level understanding of various options with the goal of keeping your money accessible and safe.

The three options noted below are held at banking institutions and these account types are all subject to FDIC or NCUA insurance levels, which is an added layer of protection.

You may note that we’re not going into stock or broker-managed investments in this post, that’s really due to complexity and risk of those types of investments. If that is the right move for your org, we’d encourage you to work closely with an investment advisor.

Before investing, it’s important to develop a written investment policy approved by your board. It should outline your shared investment understanding – acceptable investments, liquidity requirements [how quickly you can access the funds], risk tolerance, spending needs, ongoing review expectations, and who is authorized to make investment decisions. Review the policy regularly to ensure it’s still applicable overall, and that any donor restrictions are being followed.

Onto investment options!

1. High-Yield Savings Accounts

These accounts often pay a higher rate than a traditional savings account, and are more likely held at online-only banks or credit unions. The interest rate can change over time based on the Federal Reserve’s federal fund rate changes related to economic conditions. Since it’s a type of savings account, you typically can withdraw your balance when you need it, so this option can keep your money accessible. Some products may have a monthly or other withdrawal limit, so be aware of the account type you are setting up.

2. Money Market Deposit Accounts

Money market deposit accounts are typically housed at your bank and also offer higher interest rates than a typical savings account. It’s also a type of deposit account and usually comes with a minimum balance requirement that you’ll need to maintain to generate the level of interest on the account. There may be penalties to drop below the minimum level of deposit, along with the loss of interest returns. These accounts typically have fewer withdrawal limits so you have more fluid access to your funds.

3. Certificates of Deposit (CDs)

CDs are also held at your bank and offer a fixed interest rate for a set period, making them useful for funds your nonprofit won’t need immediately. They can provide predictable returns with relatively low risk. The key to a CD is timing – you can consider creating a CD ladder, spreading deposits across different maturity dates, to ensure you can access your money when you need it. There are typically penalties to withdrawing your money early. We’re sharing a specific cash flow to help track the maturities of CDs with you here in our resource library.

Protect Your Work While Planning for Sustainability & Resilience

Safe investing begins with understanding when your org will need its money. It’s important to keep operating funds accessible, invest reserves when they can be set aside, and avoid taking unnecessary risks in pursuit of higher returns.

Be sure to compare fees, interest rates, insurance coverage, and account requirements before making a decision.

Banks are continually coming out with new products to meet various needs as the market shifts so talk to your banker about your options and determine if the account’s terms work for you.

We are here if you have any questions!