ClimateSmart Cash Management: Manage your org's cash reserves in the age of climate change.

This is another way of answering the above question.

After you have above $250k in a given bank account, you lose the big advantage of keeping your cash in a bank: FDIC insurance.

Now, you may need more than that to fund monthly operations, but for anything over $250k that will not be needed on a day to day basis could likely be a better fit in an external cash account.

If your bank goes out of business, the US government has promised they will pay you back any balance up to $250k. But not anything above that amount.

So for any balance above $250k in a given bank account, you are taking on the risk of that specific bank failing. Which does happen. Just look at Silicon Valley Bank and First Republic.

There are two ways that external cash accounts can reduce this kind of risk. The first is diversification. These accounts typically largely invest in money market funds which often hold hundreds of bonds, often bonds backed by the faith of the US government (same as FDIC insurance). And second, external accounts generally carry an additional kind of insurance called SIPC insurance. In the event that the custodian of the assets you own goes out of business, SIPC insurance will reimburse up to $500k.

For smaller accounts, we invest in the majority of the funds in our favorite money market mutual fund with a small slice into our green bond fund for greater yield. If the organization does plan to make regular withdrawals from this account regularly, this is usually the best fit as its highly liquid.

For larger accounts or more cash reserves rather that will not see regular withdrawals, a customized bond portfolio built with our green bond partners, Artesian Investing can make sense.

A good money market mutual fund, should provide a similar yield (often a tad lower because of fees) to the Federal Effective Funds Rate. This is the amount the Federal Reserve pays banks to keep their deposits with them.

Go ahead and click the link above. If your bank is paying 1% less (or more) than the Federal Effective Funds rate, it could make sense to explore an external cash account to get better yield on your cash.

For example. If the Federal Effective Funds Rate is currently 4% and your bank is paying 3.5%, then the net gain is probably not super worth the hassle of having opening and running a separate account.

But if the Federal Effective Funds Rate is 4% and you're earning 2.5% on cash at your bank, then come talk to us.