Choosing the Right Commercial Checking Account for your Nonprofit

Throughout the year, nonprofit organizations review their processes for improvement, cost savings, and areas where they can create greater operational efficiencies. One of the greatest cost-cutting measures that positively contributes to the bottom line is finding new savings opportunities in the way your organization does banking.

This article outlines the process of choosing the right commercial checking account and best practices to implement that will reduce your costs and improve internal control processes. It all starts with the simple task of opening your monthly bank statement and examining three critical areas:

• What are your monthly average balances? When evaluating these figures, be sure to consider both the slower months when balances are smaller and the busy months when you have the most activity.
• What are your recurring activities and types of transactions that are performed on a monthly basis? Be sure to look at the number of deposits, number of items in each deposit, checks paid, incoming and outgoing ACH (Automated Clearing House) transactions, wires, fraud control, and remote deposit capture.
• Review your monthly analysis statement. This typically applies to organizations that carry higher balances and experience a large amount of activity. You might have to request this document, as some banks do not provide this type of detail.

Once you have compiled and reviewed the information, you can meet with your existing banker to review your options. You may even want to compare your current services with what other banks are offering. As you go through this process, be prepared to provide the information from the three critical areas listed above, and become familiar with the different types of accounts the bank offers.

For nonprofit organizations, most banks have three standard options:

• Basic Checking: Designed for organizations with smaller balances and minimal activity.
• Commercial Checking: Ideal for organizations with higher cash balances and more transactional activity. Balances maintained in commercial checking accounts generate a monthly earnings credit. Earnings credit are calculated on available collected balances. This credit is used to offset some or all of the account cost such as: checks paid, deposited items, and other services charges to the account. Be sure to ask your bank what the current rate for earnings credit is, as it may vary between 0.10 percent and 0.75 percent depending on the financial institution. In addition, be sure to get a copy of your bank’s pricing guide or schedule of services so you can compare costs.
• Nonprofit Checking with Interest: Designed for nonprofits that have fluctuating balances and would like to earn interest.

After getting the information you need from the bank, you will be better equipped to determine the type of account that will work best for your organization. There are also a number of treasury management options you may want to consider. Here is a quick list of the most popular services, with an explanation of how they can benefit your organization:

• Remote Deposit Capture (Check Scanner): An Internet-based electronic deposit solution that allows you to easily deposit checks anywhere Internet access is available. This transmits your deposits to the bank for same-day credit, providing quicker availability of funds. This is a faster solution that controls when deposits are made, assists in quickly identifying returned items to limit the risks of receiving bad checks, and works as a convenient solution for off-site banking.
• Automated Clearing House (ACH): A convenient and cost-effective method of managing your business finances. Pay your employees electronically, save money on paper checks, and eliminate the cost of stop-payment fees. This system allows your organization to track and receive automatic payments from invoices; fees; or dues from vendors, members, or other clients. Other benefits include creating ACH transactions that will automatically transfer funds from other financial institutions for automatic deposits into your primary bank account, send funds to an account at another financial institution, or pay vendor invoices through a bill payment system.
• Insured Cash Sweep (ICS) Accounts:  With an Insured Cash Sweep (ICS) Account, you get the highest level of FDIC insurance benefits and protection.  It's simple, place a deposit and the bank will make sure you get the protection you need.  Banking institutions partner together to shelter your funds across money market accounts in amounts lower than the standard FDIC insurance maxium of $250,000.  It eliminates the burden of tracking multiple deposit vehicles and gets ho FDIC insurance coverage for up to $50 million.
• Overnight Repurchase Accounts: Daily purchase and resale of U.S. Treasury or qualified Agency Securities. These accounts let your organization maximize the earning power of cash by offering convertibility of balances above a set minimum to a higher yielding investment instrument. Funds above the set minimum are automatically transferred from the primary commercial checking account and invested overnight in Government Securities.
• Fraud Controls
  • Positive Pay: An antifraud service offered by banks to help protect businesses against fraud from altered and counterfeit checks. Positive Pay assists in the creation, transmission, and research of check records sent to the bank for payment.
  • ACH Positive Pay: Allows clients to assign filtering or blocking services to various accounts based on company IDs, standard entry class codes, and dollar amounts.

You now are in the home stretch in selecting the right commercial checking account that will work for your organization. 

When making your final decision, don’t forget to research the bank's customer service practices. How does it resolve problems? As a nonprofit organization, does it provide you with a local relationship manager? If so, what is that person's level of experience and expertise? Has that person worked with nonprofit organizations before? These are just a few important questions to ask. It’s also good to call references. You want the best representative and banking institution taking care of your money. 

Finally, check on the bank’s financial stability. You can ask for a copy of its annual report, or you can do your own research through independent organizations such as Bauer Financial that will provide you with a rating on the bank’s financial strength. http://www.bauerfinancial.com/btc_ratings.asp

Choosing the right bank to handle your organization’s finances is an important task. There are many factors to consider when selecting the right commercial checking account. Utilizing this process to compare your options will help you make the right choice that will work for you.