Proposal for Nonprofit Investment in a Certificate of Deposit (CD) 

Objective

To secure a portion of the nonprofit’s funds in a low-risk, interest-bearing investment, generating a reliable return while maintaining liquidity for our operational needs.

Rationale

The decision to invest part of our fixed balance in a Certificate of Deposit (CD) stems from a need to maximize the potential of our existing funds. Here are a few key reasons why this approach is advantageous for our non profit organization,

1. Optimizing Idle Funds
• Currently, a significant portion of our balance remains in standard accounts with low or negligible interest. By transferring a portion of these funds into a CD, we can earn a fixed return over time, providing a passive income stream that benefits the organization without increasing operational costs or fundraising efforts.
2. Building a Financial Cushion for Future Growth
• This CD investment allows us to gradually increase our financial cushion through accumulated interest. By growing our reserves in a predictable, secure manner, we can support long-term projects and future initiatives, ensuring our organization remains resilient even in challenging times.
3. Offsetting Operating Costs and Inflation
• Our annual operating expenses continue to grow due to inflation and expanded initiatives. A CD investment provides a steady return, which can help offset these costs over time, thus preserving the real value of our funds and reducing the need to rely solely on fundraising to meet rising expenses.
4. Supporting Strategic Financial Stability
• Investing in a CD aligns with our strategy to maintain financial stability and ensures that we don’t need to withdraw funds from unrestricted savings prematurely. This approach allows us to protect our core mission and minimize any potential future budget shortfalls.
5. Minimal Risk with Fixed Returns
• A CD offers a low-risk, fixed-rate return, providing greater security than other investments like stocks or mutual funds. Given the stability and predictability it offers, a CD is well-suited for nonprofit funds that require preservation of capital alongside a modest return.

Investment Details

• Investment Vehicle: Certificate of Deposit (CD)
  • Reference: Certificate of Deposit Offers & Interest Rate Bumps | TD Bank
  • A CD is a secure investment option with fixed returns over a specified term. Our funds will be insured by the FDIC (if deposited in a bank) or NCUA (if deposited in a credit union) up to $250,000, minimizing risk.

• Investment Option: TD Choice Promotional CD
  • Reference: TD Bank Choice Promotional CD With Tiered Interest Rates

• Investment Amount
1. Proposed Investment: $40000
2. Source of Funds: Drawn from our current balance and planned to remain within our strategic reserve.
• Interest Rate and Term
1. Proposed Term Length: 9 Months (Jan 2025 - Sep 2025)
2. Interest Rate: Fixed rate of 4% over the term.
3. Expected Return: $1,194 based on the selected term and rate.
• Current Financials
1. Current Balance: $89,700
2. Anticipated Income (for remainder of the FY): $25,000
3. Anticipated Budgeted Spend for the FY: $43,000
4. Anticipated Net Balance at the current FY: $71,700
• Interest Accumulation
1. Payment Schedule: Interest is compounded monthly and paid out at the end of the term.
2. Reinvestment Options: Upon maturity, we will review options to either reinvest the principal or withdraw based on current needs and market conditions.

Terms and Conditions - Reference

• Early Withdrawal Penalty
  • No part of the principal may be withdrawn prior to maturity without the Bank’s consent. No withdrawals will be permitted during the first seven (7) days of the CD term.
  • The Bank does allow an early withdrawal, the following penalties will be calculated and charged based on your current balance and interest rate for a 9 month CD

     

    CD Cancellation Term	Loss of Principal	Loss of Accrued Interest
    Within 0 – 89 days	Loss of Principal (equivalent to 3 months’ interest)	No Accrual
    Within 90 days < 179 days	None	3 months’ interest
    Within 90 days < 179 days	None	3 months’ interest

• Account Fees
  • No monthly fees are associated with this CD, which ensures that the interest earned remains our net gain from this investment.

• Liquidation Conditions
  • Should an unforeseen financial need arise, the nonprofit board may choose to break the CD early, incurring the stated penalty. This decision would require a majority board vote to ensure it aligns with our mission and financial stability.

Risk and Compliance Considerations

• Liquidity and Accessibility
  • The CD will not be as liquid as a savings or checking account. This semi-liquid state suits our need for reserve funds that are unlikely to be needed immediately.

• Regulatory Compliance
  • All investments comply with nonprofit regulations, ensuring that our capital is preserved and responsibly invested.

Recommendation and Voting Process

The board recommends this investment as a prudent step towards financial stability, ensuring low-risk growth for the nonprofit's funds.

Next Steps

1. PTA Members need to vote if they are in favor (or not) to proceed with the investment via the PTA Investment Proposal - Member Vote <- CLICK HERE!!

2. Voting Duration (December 1 - December 15th, 2024).

3. Once the voting is completed, board with make a Go-NoGo decision for the investment effective Jan 1st.

Contact PTA Finance Team

For any questions, concerns or issues, please contact our Finance Team