Want to Choose a Bank That Aligns With Your Mission? Focus on Cash Deposits

Nonprofit leadership teams across the U.S. are constantly working to ensure not only that their organization’s finances are in great shape, but that their books are managed in a way that aligns with their core values. Hiring practices, expenses, donations — these all must be viewed with the lens of organizational alignment first. 

Surprisingly, banking is another area wherein due diligence must be undertaken. Namely to ensure that your organization’s cash deposits are supporting your stated organizational values. 

How Banks Use Cash Deposits

To understand how, let’s first look at how banks use cash deposits. 

Cash deposits fund businesses through loans. This can create a potential value misalignment minefield if the depositor’s organizational values are rooted in sustainability, equity or community growth, and their actual cash deposits are funding operations to the contrary. 

Here’s an example:

Nonprofit A is a successful state-level nonprofit working to support local communities through food banks and combating food insecurity. It has several large corporate donors and places $250,000 of cash deposits into Bank B, a mid-sized national bank. 

Bank B is heavily involved in the retail food market and has actively financed the purchasing of several small chain grocery stores across America in the last few years for a food retailer. This retailer has opted to close many in urban areas, creating food deserts. The retailer CEO is on record saying that it’s simply not profitable to continue to operate those stores, and the bank continues to work with this retailer to expand their plans to purchase more small grocery store chains in other regions.  

Using this example, it’s plain to see where a value misalignment in cash management could become problematic from both an operational and donor relations level. To take another example, if a climate-focused nonprofit chooses to bank with one of the top banks in the nation, it is virtually certain that their deposits are funding things like industrial manufacturing and big oil. 

Of course, the opposite also holds true. When a nonprofit organization carefully vets banking partners for values alignment, their mission can become significantly more impactful. For instance, if a Milwaukee nonprofit focused on creating safer communities chooses to bank with Columbia Savings and Loan Association, a minority-led bank in Milwaukee, the organization can be sure their deposits are funding the local community in the form of loans, mortgages and job creation. 

So, What’s Your Next Step? 

Considering how your organization manages your cash deposits and where your nonprofit places them needs to be an important part of your ongoing financial operations strategy. In addition to creating value alignment in your banking relationship, you can also seek to negotiate higher rates of return on your cash deposits. 

Too often, nonprofit leaders aren’t doing this. Currently, banks are making loans in the 8% ballpark, and typically paying depositors less than 1%. Clearly, there is room for discussion when you’re an organization providing deposits at significant scale.

Lastly, in today’s financial climate and in the wake of the bank failures of 2023, you must ensure that all your cash deposits are fully FDIC insured. After all, your community is counting on you. 

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.