Types of Accounts
Just as with your family's banking, the most basic accounts for your organization will be a savings and a checking account. There are more options, but it is good to understand these basic accounts first.Savings Accounts
A bank savings account is designed to hold money to which you do not need immediate access. When contrasted with checking accounts, bank savings accounts tend to pay slightly higher interest rates.
Savings accounts offer easy access to your cash. In other words, your money is liquid (meaning you can make a withdrawal easily and quickly). Note that savings accounts are not as liquid as checking accounts, because you can get money from a checking account by simply writing a check. Banks vary with respect to policies for withdrawals, so make certain their policies and your needs are identical before opening the account.Deposit-Only Accounts
Deposit-only accounts are an excellent way for the public to contribute to your organization. Your bank or credit union will set up an account, usually with a memorable name, and anyone at any time may make a deposit. The contributor will have a record of the deposit for his or her records, and the deposit will go directly into your organization's auxiliary account or into your working account.Checking Accounts
Checking accounts are similar to savings accounts in that they offer a safe place to keep money you do not need immediately. The bank will issue checks in your organization's name, and you can use them to pay bills.
Unlike personal checking accounts, most financial institutions charge fees associated with check use for corporate accounts (which includes nonprofits). As you consider all the options, look into the fees you'll be charged to write checks.Certificates of Deposit
Certificates of deposit (CDs) are debt instruments issued by banks and other financial institutions to encourage individual or organizational investors to put money in their bank. The investor receives a set rate of interest in exchange for lending the bank or credit union money for a predetermined length of time. Maturities on certificates of deposit can range from a few weeks to several years. The interest rate your organization will earn increases in proportion to the amount of time the money is in the CD.
What does maturity mean?
Maturity is the length of time you have agreed to allow the CD to remain before deciding to withdraw it or renew it. The time period might be six months, one year, three years, or any other time offered by the bank. If you withdraw your funds from the CD before its maturity date, the bank will charge a penalty that affects any interest you have earned.
One of the advantages of a CD is that your organization can calculate the earnings you can expect at the outset when you take out the CD. They are fully insured by the FDIC and earn slightly more interest than a basic savings or checking account. This makes CDs an easy, safe way to save money in the long term.
But there is a tradeoff. To earn the highest interest rates, you have to opt for longer maturity, which means you lose access to the funds or have to accept a far lower interest rate if you need to cash them out early.Money Markets
Money markets offer many of the same benefits as CDs with the added features of a checking account. Technically speaking, a money market is more or less a mutual fund that attempts to keep its share price at a constant level of $1. Professional money managers will take the funds you deposit in the money market and invest them in minimal-risk instruments such as Treasury bills, savings bonds, and CDs. Your organization will receive payments from the interest the money market earns.
Investors can open a money market account at most financial institutions. Generally, you will receive a checkbook to use to access funds in the account.
Depositing money in a money market is as easy as depositing cash into a savings or checking account. Cash is immediately available for other investments or other needs.
On the downside, some financial institutions limit the number of checks that can be drawn against the account in any given month. The rate of interest is also directly proportional to the investor's level of deposited assets — not to maturity, as is the case with CDs. The obvious downside is that money markets are disproportionately beneficial to wealthier investors who will be receiving a higher interest rate.