Nonprofit Checking Accounts – The Super Guide

Article Summary:

You have to take care of a lot of things when starting a nonprofit organization. This article will guide you through one of them: setting up your nonprofit’s checking account. This post covers what you need to know from issues you must keep in mind to banks you should consider.

Nonprofit organizations are all about being focused on their mission. Unfortunately, there are special financial challenges that come with the nonprofit territory. These can be unwelcome distractions from the nonprofit’s ultimate goals. And they highlight the importance of choosing the right place to do your nonprofit business banking.

Fortunately, financing institutions have expanded their offerings to nonprofits in recent years. They’ve realized the importance of helping nonprofits grow and expand their work. Nowadays, there are multiple products and services available to nonprofits. Many major banks and online banks now provide new options for nonprofits. These options were previously only available to small businesses.

Nonprofit vs. small business banking needs

The financial needs of nonprofit organizations differ from those of small businesses. This guide will help you understand how. It will also present you with a list of the best places to consider opening your nonprofit checking account. It will also give you some tips on nonprofit banking best practices. Follow these tips to avoid mismanagement headaches and complications with the IRS.

What should you consider when comparing nonprofit checking accounts?

There isn’t one checking account that is the best for all nonprofits. A lot depends on the specific needs, goals, and financial situation of each nonprofit. Only you know what features matter the most to your organization. Here is a list of key questions you can ask yourself to determine which option is best for your nonprofit.

What style of banking is the best fit: national bank, local bank, or credit union?

National banks are a popular choice for nonprofit businesses. This is because they offer full-service banking with a wide-ranging presence. They are well suited to handling voluminous transactions. They are also adept at handling the cash deposits typical in nonprofit operations.

Local banks are another option. Nonprofits who want to prioritize supporting their communities may prefer them. Often, these smaller banks will have standard banking services on par with the larger national chains. But they may not offer certain business convenience features. An example is remote deposit capture (mobile deposit).

Credit unions are themselves community-based, nonprofit organizations. They may not have all the bells and whistles of larger banks, but they can be much more understanding when it comes to credit eligibility requirements and waiving fees than traditional banks.

Is an online-only checking account an option?

Is your nonprofit organization comfortable with exclusively online and mobile banking? If so, digital banks may be the answer. Say you have no cash transactions and you’re ok with not having access to a physical branch location. In that case, digital banks may be a good option for you. They can offer cost-effective, app-integrated banking products with few to no fees.

What will it cost you to bank with them?

Most banks charge a monthly maintenance fee for checking accounts. Some let you avoid the fee if you meet a minimum balance requirement. That may not be problematic for regular small businesses. But it can be a challenge for not-for-profit businesses with different financial mechanics. Cash flow is typically not consistent for nonprofits the way it is for small businesses. Nonprofits rely on unpredictable donations for support. Regular small businesses get their revenues from generally consistent and fairly predictable sales.

Will your nonprofit be unable to regularly meet an average minimum balance requirement? If so, choosing a financial institution that doesn’t charge a monthly fee may be your best bet. Fees generally run around $10–$15 per month, and that can add up quickly when you’re on a tight budget.

Are you also considering a credit card or a line of credit?

Nonprofits get most of their funding from unpredictable or irregular donations. As a result, uneven cash flow is often a challenge they face. Yet they still have the same fixed expenses as small businesses. These include payroll, rent, utilities, insurance, and so forth. Government reimbursements can be a reliable source of support, but frequently they are delayed.

The lending standards of traditional banks are often too stringent for nonprofit organizations. Some financial institutions help compensate for this by waiving some requirements and restrictions when dealing with nonprofits. This makes it easier to secure a loan when necessary.

A business line of credit can also help you make regular payroll when cash is tight. You then pay it back once cash starts flowing again. Since it’s unsecured debt, it requires no collateral, which can be tough for nonprofits to front. Do you think you will need a business line of credit? If so, speak to a bank officer about what the requirements are before you choose your bank.

The best banks for nonprofit checking accounts

There’s no shortage of options if your nonprofit needs a checking account. Here are three options to get you started.

PNC Bank

PNC Bank offers a tailor-made nonprofit business checking account. The account requires an initial deposit of only $100. The bank also provides other standard business features for free. These include business debit cards and bill pay services, for example. PNC is primarily based in the United States’ Midwest, East Coast, and South. Is your nonprofit based in one of these regions? Then you should definitely consider PNC for your nonprofit business checking accounts.

WEIGH THE RISKS AND BENEFITS

Here is a list of PNC Bank benefits and drawbacks to consider.

Pros
  • Monthly fee is waived for first three months
  • 150 free transactions per month
  • Up to $5,000 of free deposits per month
  • 2,300+ branch locations
  • Good choice if you want a “socially responsible” bank that “gives back to the community.” Helps communities through its PNC Foundation. This is a $500 million initiative to help prepare children for school
Cons
  • Average minimum balance of $500 required to avoid monthly service charge
  • Very limited presence in the western U.S.

TIAA

Formerly EverBank, TIAA is a Florida-based online bank with no physical branch locations. This may be a good choice for the right kind of nonprofit. The right kind of nonprofit is a larger one that can afford the higher initial deposit. You also need to be willing to do all your banking online. You can earn an excellent APY with their guaranteed Yield Pledge Promise.

APY stands for annual percentage yield. This is the amount of interest actually earned each year, including compounding. You know accounts have interest rates and will earn interest. But how much? If an account onl compounds interest yearly, the APY will be the same as the APR (annual percentage rate). If the interest compounds (gets added to the principal) more often, the APY will be higher.Let “r” stand for the rate of interest during each compounding period. Let “n” stand for the number of compounding periods in a year. In that case, the formula APY = (1 + r/n)n – 1 gives you the yield. So, if the rate is 1% and the compounding period 1 year, APY = (1+0.01/1)1 – 1 = 1.01 – 1 = 0.01 = 1%. In this simplified example, the APY equals the APR, as predicted for yearly compounding.

WEIGH THE RISKS AND BENEFITS

Here is a list of TIAA benefits and drawbacks to consider.

Pros
  • Earn an APY that’s higher than most business savings accounts on any balance
  • Completely online banking, if that’s important to you
  • Do you factor community involvement into your banking choices? If so, you may want to consider TIAA. The bank operates a nonprofit charity benefiting organizations in the state of Florida. That charity has contributed over $10 million to Florida charitable organizations.
Cons
  • $5,000 minimum balance to avoid monthly service charges.
  • Initial deposit of $1,500 to open an account.
  • No physical branch locations.
  • Only 10 free bill payments per month.

US Bank

US Bank’s nonprofit checking account boasts appealing features. These include no monthly fees and no minimum balance requirements. The account is sufficiently flexible to fit both large and small nonprofits. This and the bank’s vast array of financial services make US Bank a solid option.

WEIGH THE RISKS AND BENEFITS

Here is a list of US Bank benefits and drawbacks to consider.

Pros
  • No monthly fees
  • 1,800 free transactions per year (150 per month)
  • 300 free cash deposits per year
  • 3,000+ branch locations nationwide, primarily in the Midwest and West
  • Another viable option if you choose banks based on social responsibility. In 2019, the bank committed to $60 million in community donations. In the same year, it committed its employees to 334,000 hours of local volunteer work.
Cons
  • Limited locations in some regions

Banking for nonprofits: things to know

Opening a nonprofit bank account can differ considerably from opening a standard bank account. It is essential to know these differences ahead of time so you can be prepared. To open a nonprofit checking account, you must be a nonprofit and be able to prove it.

To open a checking account for your nonprofit, you’ll need to present:

  • Your incorporation paperwork
  • IRS tax identification number or EIN (employer identification number)
  • IRS tax-exempt status affirmation letter

Some banks may also require additional documentation. This could include the minutes of your most recent meeting. It could also include a signed certificate of the election of officers. It is a good idea to call the financial institution and find out exactly what they’ll need from you. Be sure to tell them specifically that you plan to open a nonprofit checking account.

Best practices for nonprofit organization banking

Businesses’ operations need to line up with solid business practices. This is as important for nonprofits as for regular businesses. You’ll want to show the bank that your organization is legitimate and honest. You’ll also want to be sure there is appropriate transparency for its own sake and your organizations’ safeguarding.

Require two signatures on checks for nonprofit checking accounts

One way to ensure this is by requiring two signatures on checks. This is frequently a requirement on corporate bank accounts. But nonprofits are exempt from the rule. Despite the exemption, requiring two signatures on checks is not a bad idea. This brings us to one general rule of good policy. What’s that rule? The person handling the nonprofit organization’s finances should not be the same person signing the checks. As well, deposits should always be counted and verified by two people. Yes, your organization has a noble cause. But that doesn’t free it from the threat of unscrupulous people and fraudulent activity.

Manage your nonprofit checking account with quality bookkeeping

Solid bookkeeping is also essential. It is not at all uncommon for a nonprofit organization to receive a substantial amount of money all at once. This might be from a single event like a large fundraiser. Or it might come in the form of a generous donation. Banks are required to complete a form reporting deposits of $10,000 or more and submit them to the IRS. The stated purpose of this law is to prevent money laundering by criminals. Criminals can use cash deposits to disguise the illegal sources of their funds. This requirement applies to the accounts of regular businesses and nonprofits alike. These reports are usually filed without incident. Still, your nonprofit organization’s bookkeeping must match what’s reported to the IRS. This is important. Discrepancies are what could turn “without incident” into “major hassle.”

Make these practices standard procedure. This can help protect your nonprofit organization’s checking account and tax-exempt status.

Key takeaways

  • There’s no shortage of options if your nonprofit needs a checking account
  • To get an account, you need to prove you’re a nonprofit. Some proof you might need:
    • Incorporation paperwork
    • IRS tax identification number or EIN (employer identification number)
    • Your IRS tax-exempt status affirmation letter
    • Minutes of your most recent meeting
    • A signed certificate of the election of officers
  • Factors to consider when choosing the right bank for your needs
    • Is the bank online-only or does it have branches?
    • If it has branches, how easy will they be for your to access? Are they conveniently located? Are they plentiful?
    • What are the fees? What’s the monthly maintenance fee? Will the be fee be waived if you maintain a certain balance?
    • Does the bank give back to the community?
    • If you’re old school, you may think for-profit businesses should focus on business, not community. This, you believe, ensures they provide the best value to customers and shareholders. That’s the attitude of the SuperMoney editor who inserted these remarks. If you share this viewpoint, just look for the best deal for your nonprofit. The best way to maximize your ability to benefit the community is to get the best value you can.

The bottom line

At the end of the day, whom you choose to bank with depends on various factors. Top among these are your specific nonprofit organization’s size and individual needs. It’s not a one-size-fits-all situation. Explore your options, weighing their pros and cons. And, if this is important to you, choose a bank that gives back to the community the way your nonprofit does.

Article Sources & Additional Reading
  1. 3 Things to Know When Opening a Non-Profit Bank Account — M C Bank
  2. Federal Tax Obligations of Nonprofit Corporations — IRS
  3. Annual Percentage Yield (APY) — SuperMoney
  4. Best Checking Accounts — SuperMoney
  5. How to Launch a Nonprofit Corporation — SuperMoney