Having a trustworthy financial institution is essential for any organization. However, what is the best option for a nonprofit? Should you choose a commercial bank or a credit union? What should you consider when making a choice? Picking a bank for your nonprofit can be overwhelming, and switching institutions can be even harder. To understand how to go about choosing the best bank for your nonprofit, read on for a few tips, as well as the banks we feel are the top contenders.
Commercial Banks, Small Banks, or Credit Unions?
Commercial banks are often the first choice for nonprofits, mainly because of their presence and overall visibility. These banks often have accounts created specifically for nonprofits and can offer exceptional amenities. Because they have a national presence, there are few things these commercial banks don’t deliver in all 50 states.
Smaller banks, usually local, are a great option for nonprofits who want to support the community in which they reside. These banks have many of the same amenities of larger, national chains. However, they may not offer as many business-style services, like wire transfers or coin deposits.
Credit unions, on the other hand, operate as not-for-profit institutions themselves. They fund their member benefits and community initiatives with the interest from their accounts and member fees.
However, it’s important to note that some credit unions are not adequately insured to host accounts for organizations with 501(c)(3) status.
How to Choose a Financial Institution
Whether you decide to enroll with a credit union, small bank, or a commercial bank, you’ll need to make sure the institution you choose has everything you need. Here are six critical factors to consider when selecting a financial institution for your nonprofit organization.
A financial institution won't be of much use if it can’t give you what you need when you need it. Before choosing a bank, consider:
- Does the bank have a physical branch located near you?
- What kind of customer support do they offer?
- Do they offer mobile banking?
- What are their deposit limits?
- How many people can access the account(s)?
- What are the rules regarding access?
If you need any specific features such as ATM access, mobile banking, ACH (automated clearing house) payments, foreign currency transactions, insurance coverage, or fraud control, make sure your financial institution can provide those.
Any time you’re choosing a partner to work with long-term, it’s important to consider the cost. Financial institutions use a variety of fee structures, so make sure you get clarity on what your out-of-pocket costs will be. You may be asked to pay a monthly or annual fee. Some banks charge fees for each transaction, or transactions exceeding a certain limit. You may also see processing fees, added-user fees, ATM fees, or other maintenance fees.
Also, be sure to ask about minimum balances. Most institutions have a minimum to open an account, but many also have minimums that balances must exceed. You may face penalties if you don’t comply with those requirements.
For accounts used for basic operations, such as a business checking account, interest is probably not a big concern. However, if you’re maintaining any savings on behalf of your organization, a good interest rate can make all the difference. Talk to your potential banks or credit unions about their rates for different types of accounts.
While the fees and interest should always be an area of focus, make sure you’re considering credit availability. Some nonprofits use lines of credit as part of their strategic budget planning. Some like to have credit available in case of a slow funding period or in case of unforeseen budget complications. If you expect to use a line of credit at any point, find out what your institution requires and what it can offer you.
Like any other aspect of running a successful nonprofit, it helps to work with businesses who have experience with nonprofits. Some financial institutions have a strictly commercial portfolio, or where others have a wide range of expertise. Experience with small businesses can apply to small nonprofits, so look for this marker and ask potential institutions about their work with relevant industries. Find out if they’re capable and ready to support the needs you have that might differ from their commercial clients.
It may also be helpful to request testimonials from current customers. These reviews can provide great insight into how other businesses and organizations feel about the products and services they’re receiving.
As a nonprofit, it’s safe to say that ethics are a high priority, especially when it comes to how your business handles money. Although highly regulated, banking regulations can be cyclical, and there are always loopholes. Make sure to choose a bank that makes its ethical standards known.
As a nonprofit, you should feel confident that the banks you work with are adhering to the same ethical standards to which you hold your organization. If you don’t think that the financial institution you’re considering (or currently use) is ethical, know that there are better options out there.
Nonprofit Banks and Credit Unions
With banks and credit unions serving local, regional, and national audiences, it can be difficult to pick just one. You should be looking for an institution that provides utility to your organization and addresses all of your needs. Within this category include those that cater to low-activity, low -balance businesses, as well as those banks with relationships similar to large businesses. Here are just a few national and local institutions to consider for your own nonprofit. Be sure to do thorough research and determine your long-term goals before deciding who can best support you.
- US Bank: US Bank is a nationwide commercial bank offering nonprofit accounts. In addition to merchant services like credit card processing, they also have a low fee structure and 1,800 free transactions annually. They also offer interest-accruing accounts.
- PNC Bank: PNC Bank offers checking accounts designed specifically for nonprofits. These accounts include a business debit card and free online banking and bill pay—plus they don’t have a minimum balance requirement or any monthly maintenance fees.
- Wells Fargo: Wells Fargo offers both checking and savings business accounts for nonprofits, both of which include online banking. They also provide payroll services, retirement plans, and merchant services, allowing you to link all services together under one roof.
- A Local Bank or Credit Union: Support your community or your cause by choosing a community bank or credit union near you. Most, though not all, offer similar services to larger commercial banks. Be sure to consider any cost differences that may arise when choosing a smaller vendor, and always make sure they abide by the ethics expected of any financial institution.
There’s No Right Answer
Just like your finances, it’s possible for your nonprofit to have accounts with multiple institutions. While you don’t want to over-complicate your organization’s finances, it’s still perfectly acceptable to choose various banks or credit unions based on the benefits they offer for different needs. One bank may provide more affordable merchant services while another offers higher interest rates for savings accounts, and it’s okay to create a financial plan that gives your business exactly what it needs. The entire process of finding a financial system that works for your nonprofit takes time, but now you’ll have more insight into what you can expect (and deserve) from a bank.