The Hidden Cost of Cash: Why Many Nonprofits Keep Too Much Money in the Bank

Many nonprofits have more cash than they realize.

Not because they're doing anything wrong. In fact, it often happens because they've been responsible. They've built reserves, received a large gift, completed a capital campaign, or accumulated years of operating surpluses.

The challenge is that cash feels safe.

And while cash absolutely has a role, every dollar sitting in a bank account is making a financial decision. The question is whether it's the right one.

Start With One Question: When Will We Need This Money?

Before discussing investments, CDs, or interest rates, determine the purpose of the money.

I encourage boards to divide their cash into three buckets:

Bucket #1: Operating Cash (0–12 Months)

This is money needed for payroll, rent, programs, and expected expenses over the next year.

This money should remain highly liquid.

Bucket #2: Reserve Funds (1–5 Years)

This is money set aside for unexpected opportunities, economic downturns, or future projects.

These funds may be appropriate for high-yield savings accounts, treasury strategies, or CD ladders that provide a higher return while preserving access.

Bucket #3: Long-Term Assets (5+ Years)

This includes endowments, quasi-endowments, and reserves intended to support the organization well into the future.

Keeping these dollars entirely in cash may actually increase risk because inflation steadily reduces purchasing power over time.

These funds often deserve an investment strategy aligned with their long-term purpose.

A Simple Case Study

A nonprofit we reviewed had approximately $3 million sitting in operating bank accounts.

After analyzing cash flow needs, we determined only about half of that amount was needed for operations and reserves over the next 12 months.

The organization moved a portion into a CD ladder while maintaining ample liquidity.

The additional interest income generated enough revenue to cover roughly one employee's annual salary.

No new donors. No grant applications. No additional fundraising.

Just a better match between the organization's cash and its goals.

Is Your Bank Helping You Think Strategically?

Many nonprofits assume their bank will proactively advise them when better options exist.

Unfortunately, that's not always the case.

Ask your banking partner:

• Are we earning a competitive rate on excess cash?
• Should we consider a high-yield savings account?
• Would a CD ladder make sense?
• How much FDIC coverage do we have?
• Are there cash management solutions we should know about?

If you haven't had those conversations recently, it may be time.

What About FDIC Insurance?

FDIC insurance is important, but many boards either ignore it or worry about it more than necessary.

If your nonprofit holds substantial cash balances, understand:

• How much coverage exists at your institution
• How your accounts are titled
• Whether additional deposit-insurance solutions are available

This is especially important for organizations holding several million dollars in cash reserves.

The Goal Isn't Maximum Return

This isn't about squeezing every last dollar from your cash.

It's about being intentional.

• Keep operating dollars liquid.
• Keep reserve dollars accessible.
• Invest long-term dollars appropriately.

When each dollar is aligned with its purpose, the organization gains something every nonprofit wants: greater financial sustainability and more resources available for mission impact.