Scope of Problem
Imagine what an extra $1 billion dollars a year could do for good causes. That’s equivalent to the average donations of 1.1 million people according to Giving USA 2019!
We analyzed the annual financial returns of 300,000+ US nonprofits released by the IRS from 2016 to 2018. Among our discoveries was that many organizations keep their funds in accounts paying zero or minimal interest. This is because most banks pay incredibly low interest in checking and savings accounts — many times lower than U.S. interest rates. Together, this amounts to billions of dollars in losses for the charitable sector.
Impact on Individual Charities
By keeping money in low-interest accounts, individual nonprofits can lose $1000’s to $100,000’s a year in interest on their savings.
Let’s take the example of an organization with $5,000,000 in 2018 where the US interest rate (federal funds rate) averaged 1.79% for the year. This would’ve generated $90,000 that year. Multiply this over a 10 year period and we’re looking at nearly $1 million in extra funding!
It adds up quickly! An extra $1 million can make a big difference.
Our recommendation to nonprofits: Deposit funds in high-interest, highly liquid savings accounts.
The setup time to create a new bank account is only a few hours for considerable financial gains. At an interest rate of 2% for example, think of every $1,000,000 (which many organizations have!) as generating $20,000 in interest a year. How many donations and staff hours is that worth?
Our hunt for the best institutional savings account led us to 2 companies: StoneCastle and the American Deposit Management Company.
If you know other great options please let us know! Most high-interest savings accounts from Goldman Sachs’ Marcus account to Barclays Online Savings only allow individuals to apply.
These 2 companies have decades of experience and each manage billions of dollars for institutions like Fortune 500 companies, U.S. government entities, foundations, universities, and more. Hence why we decided to partner with them to help nonprofits.
Here we’ll focus on StoneCastle’s Federally Insured Cash Account (FICA) for Advisors.
Developments in Banking
Let’s first understand what’s changed in the last few years/decades.
Previously we might’ve chosen the bank nearest to us, or perhaps after some research, signed up for the best bank in the city. Today, thanks to the internet, we can select the best banks across the country — including online banks that have lower overheads and as a result pass higher interest rates on to depositors. We don’t have to limit ourselves to a single bank anymore!
StoneCastle analyzes yields at ~850 banks in their network and instructs US Bank — the bank that holds funds deposited into FICA accounts — to deposit funds at the banks that are offering the highest yields at any point in time. With funds diversified across many banks, this leads to stable, competitive rates as well as very high FDIC insurance coverage.
Here are some features of StoneCastle’s FICA account:
- No Minimums – No minimums to create an account and no minimums to maintain an account
- No Fees and Limits – No monthly fees or maintenance fees met, and no transfer fees or limits
- Next-Day Availbility – Funds can be withdrawn or deposited in a day (ACH transfer times still apply)
- Transparency – Easy-to-use online interface that displays which bank(s) funds are being held at
- Trust – All funds are handled by US Bank—neither StoneCastle or Antigravity Investments have access
- Safety – Federal Deposit Insurance Corporation (FDIC) is $250,000 per bank, but since StoneCastle deposits money across banks, FICA accounts are FDIC insured up to $25 million
- Fair Rates – StoneCastle rates are closely tied to the US interest rate (federal funds rate)
FDIC Insurance Coverage
100 Banks x $250,000 Per Bank = $25,000,000
Mid-2019 Interest Rate
Annualized Interest Rate (APY)
You can keep your existing bank. Just put the majority of your cash in a FICA account to accrue interest and shift money in/out as necessary. Storing cash in a FICA account is safer than storing over $250,000 at a single bank because deposits over $250,000 are not insured by the FDIC.
It’s never been easier to get the best rates in the country. We suggest signing up and testing the waters with small amounts. Then shifting in more once you’re comfortable with how everything works.
This is the first and easiest of many financial optimizations a nonprofit can make.
Send us an email to learn more or get started: [email protected]yinvestments.com.
Start Earning Higher InterestRequest a Meeting
Note: As of June 2020, the Federal Reserve has dropped US interest rates close to zero. Reflecting this, our top recommendations now yield between 0.5% and 1.5%. These yields will increase once the US interest rate goes back up.