Nonprofit Banking | 5 Things Every Nonprofit Should Know

Choosing the best bank for your nonprofit relies on several factors. Nonprofits must consider rules and regulations that for-profit organizations don’t typically deal with, so finding a bank that caters to nonprofits is crucial. In this article, we’ll discuss the importance of bank choice, special resources banks have for nonprofits, and how to open a nonprofit bank account.

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Nonprofit Banking | 5 Things Every Nonprofit Should Know

nonprofit banking tips

For nonprofits of any size, how you hold on to your money matters. You may already be researching banks in your area in preparation for opening an account but don’t know what to look for when choosing the best one.

If you’re a nonprofit, the rules are a little different than those followed by for-profit organizations. When selecting a bank, you’ll need to consider factors that for-profit organizations don’t typically deal with when setting up an account for their business.

Opening a nonprofit bank account is an extremely crucial step to collect donations and move your nonprofit’s mission one step closer.

Top 5 Things to Know About Nonprofit Banking

  1. Bank Choice Is Everything
  2. Some Banks Have Ethical Standards and Guidelines
  3. Bank Experience With Nonprofits Is Key
  4. Some Banks Have Special Resources for Nonprofits
  5. Documentation Is Necessary

Bonus Resources –

  1. How to Open a Nonprofit Bank Account (in 5 Steps)
  2. 5 Nonprofit Bank Account Rules You Must Know
  3. 4 Best Banks for Nonprofit Organizations

1. Bank Choice Is Everything

nonprofit banking tips

If you’ve founded a nonprofit and are ready to start soliciting donations and spending money, you might feel the urge to rush to opening a 501c3 bank account. However, it’s a better idea to begin by researching banks in your area first.

It won’t necessarily be simple to switch banks once you’ve opened an account, so make the right decision the first time. You want to ensure your nonprofit’s mission and goals align with those of your bank. You also want to choose a bank with excellent services and customer perks.

2. Some Banks Have Ethical Standards and Guidelines

nonprofit banking

Many banks hold themselves to a high standard of social responsibility. If you’re a socially-focused org, you’ll likely want to work with a bank whose interests mesh with yours. Typically, you should be able to ask your banker for their institution’s code of ethics or check whether the bank has a social responsibility statement. These will give you an idea of the bank’s standards and let you know how the institution positions itself within the community.

Working with a smaller bank or local credit union can also be a good idea for nonprofits that want to connect closely to their local community. Regional banks with local ties are more likely to be invested in the surrounding residents than larger banks. Banking with them can assist you with networking and identifying local issues your nonprofit can help with.

Additionally, see if your chosen bank or credit union follows their ethical standards in practice. Despite having the best intentions, not every bank does. A quick investigation of the bank and its relationship with community members will tell you how likely the institution is to follow its standards in day-to-day operations.

3. Bank Experience With Nonprofits Is Key

nonprofit banking tips

Not all banks have significant experience with nonprofit banking. When selecting a bank, the best fit will be one that has had many nonprofit clients in the past. The ideal business will have a decent percentage of nonprofits as current clients.

If your bank has experience working with nonprofits, they can provide expert assistance. For example, nonprofits can sometimes apply for tax-exempt loans, bonds, and financing. A bank with no experience working with nonprofits may not be able to help you navigate the application process if you want your organization to receive this kind of funding.

While you can work with a bank with no nonprofit experience, its staff may not have the level of expertise you need for smooth operations.

You should also consider other relevant skills. If you plan to form a public-private partnership, for example, a bank that’s worked with public agencies and private organizations is more likely to offer useful guidance and advice.

4. Some Banks Have Special Resources for Nonprofits

nonprofit banking

Many banks — but not all — offer unique resources and services for nonprofits.

These services can include direct lending, networking opportunities, and training that will help your org secure and manage money more effectively. If hiring a full-time treasurer isn’t an option for your org, some banks will act as a treasurer for a fee.

Some banks also offer special accounts for nonprofits that you can take advantage of. For example, PNC Bank will waive the monthly service charge if you keep at least $500 in your nonprofit’s account. TIAA offers an account with no fees at all, so long as you maintain $5,000 in it.

Banks are also sometimes willing to sponsor events for nonprofits that bank enough money with them.

5. Documentation Is Necessary

nonprofit banking tips

Opening a bank account for your nonprofit typically isn’t a complex process. It will, however, require some preparation and the right documentation. Almost every bank will require your nonprofit’s incorporation paperwork, bylaws, tax ID number, and letter of exemption from the Internal Revenue Service (IRS).

You will also need to identify a treasurer and select which officers will sign checks on behalf of the organization. Your bank will probably require that you provide some form of identification for these officers. Certain banks may request even more information. They may ask for additional documents or extra certification before they’re willing to open an account. For this reason, it’s a good idea to call ahead and ask what documents you’ll need before you try to open an account.

If you haven’t already applied for tax-exempt status, you should start there. There are numerous tax-exemption options for nonprofits, and only one will be the correct choice for your organization.

You may be able to open a bank account for your nonprofit organization before you receive tax-exempt status. You won’t, however, have access to any of the benefits that this status offers your organization. You also may not be able to use the designated services your bank has for nonprofits.

How to Open a Nonprofit Bank Account (in 5 Steps)

The steps to open a nonprofit bank account are pretty basic but they require your utmost attention as a lot of IRS paperwork is involved. Let’s have a look at the 5 steps:-

Step 1 – File necessary documents with the state

You need to file articles of incorporation if it is a nonprofit corporation that you want to build. If not, filing articles of incorporation is not needed. However, your state still requires you to submit a few necessary documents. You should check your state government website about these requirements.

We have dedicated articles on starting a nonprofit in various states.

Step 2 – Get your Employer Identification Number (EIN)

You can apply for the EIN on the IRS website directly. Remember to have all the necessary information handy as you sit down to file the form. As soon as you have submitted the application, you’ll be given the EIN. It’s the first essential step to open a nonprofit bank account.

Step 3 – Get the nonprofit status from the IRS

File IRS Form 1023 to apply for the recognition of exemption status. This form requires the below information from your nonprofit –

  • Activities of your nonprofit
  • Business structure
  • Who benefits from the nonprofit
  • Financial arrangements

And more. There’s a streamlined version of this form which is Form 1023-EZ. You need to check if you’re eligible to file this form. At Donorbox, we have curated a thorough analysis of both forms in a blog. Check it out here.

Step 4 – Gather necessary documents to open the account

Here is a list of all the documents and information that you must carry to your bank in order to open an account for your nonprofit –

  • A copy of your nonprofit bylaws
  • A copy of articles of incorporation
  • A copy of EIN
  • A list of all of your officers and their Government-issued ID cards

Step 5 – Research banks and open an account

It’s best to check out bank websites for any mandatory requirements, rules, and fees to know which one will work for your nonprofit. Also, remember to check their availability in your location and other places in the country – ATMs and branches.

Once you’ve selected one or more banks, it is advisable to make a personal visit to talk with their representatives. Clear all doubts or concerns. Finally, zero in on one bank and open your nonprofit bank account.

5 Nonprofit Bank Account Rules You Must Know

Banks have made maintaining a nonprofit account pretty much easy but there are rules you need to follow. Here’s a list of 5 nonprofit bank account rules you must check before proceeding to create a bank account.

1. Banks require a copy of your nonprofit bylaws

Keep a copy of your nonprofit bylaws handy before you go about creating a bank account. Here’s what you must include in the bylaws, alongside other important information –

  • Your nonprofit purpose
  • Contact information
  • All the significant members of your nonprofit – director, president, treasurer, founder, other officers.
  • Bank signatory policy – who handles the money, who signs the checks, who verify deposits, etc.

It is best practice to check the bank requirements before finalizing your nonprofit bylaws.

2. Banks will look for your IRS documents

Filing your annual returns with the IRS is mandatory before you create a bank account. Here’s what banks absolutely need while considering your bank account opening request –

  • Incorporation paperwork of your nonprofit
  • IRS letter of tax exemption
  • Tax Identification Number

Remember these are the least requirements of the bank. Some nonprofit bank account rules need you to provide more in-depth information about your IRS filing and related documents.

3. Banks adhere to the FinCEN rule

The FinCEN i.e. Financial Crimes Enforcement Network ensures there’s no scope for money laundering and other financial crimes. For that, nonprofits need to make the account ownership information and the intention for the bank account very clear.

You wouldn’t want frequent changes in the names of the bank account owners. To ensure that, create a policy in your bylaws that states no more than one officer can change within a particular year. At the same time, ensure that you keep at least 2 officers’ names in the bank account.

4. Banks require you to maintain a minimum balance

This can be a little tricky if you’ve only just created a nonprofit and it’s still pretty small. Every bank has its own set of rules regarding maintaining a minimum balance in the nonprofit account. And if you fail to maintain it, there’s a certain fee you have to pay every month.

A good idea is to create a nonprofit budget and adhere to it throughout the year. For example, if you expect to earn more during the end of the year giving season, try and save a good amount in your account from that fund. That way during the rest of the year, you can avoid going below the threshold line.

5. Banks must report your cash deposits to the IRS

Again because of the FinCEN rule, the IRS has imposed a mandatory requirement on the banks in case of nonprofit accounts. Any single deposit exceeding $10,000 or multiple ones adding up to $10,000 must be reported to the IRS. The bank has to file IRS Form 8300 for that. Furthermore, your nonprofit falls at the risk of an IRS investigation.

Therefore, it’s important to be careful when you’re about to host big events or fundraisers for your nonprofit. The only way to tackle this is to maintain your financial records well and use an effective accounting tool.

Now that we know what are the nonprofit banking rules, let’s see some of the best banks for nonprofit organizations.

4 Best Banks for Nonprofit Organizations

Some banks offer privileges for registered nonprofit organizations. You can expect benefits such as a set number of free transactions per year, high APY, zero maintenance fees, and more. It means you can use your funds more efficiently for your nonprofit, programs, and its mission.

Here is a list of the 4 best banks for nonprofits:

1. PNC Bank

With over 2300 locations nationwide and its own version of nonprofit banking, PNC Bank can be the best option for you. The bank waives off monthly fees for the first 3 months. After that, you need to maintain an average minimum balance of $500 to avoid any monthly fee. It takes only $100 of opening deposit to avail of all the standard business features for free. These features include business debit cards, bill pay services, etc.

PNC Bank offers you 150 free transactions each month, post which you need to pay an additional 50 cents per transaction. With this bank, you can deposit up to $5000 per month with no fee. After that, they charge you 25 cents per $100 deposit. 

Above all, PNC Bank has its own foundation that helps deserving kids with education. So you know you are working with a bank that cares about helping others.

2. U.S. Bank

U.S. Bank has tailored its nonprofit checking account considering charities of most sizes and budgets. Therefore, with them, you have zero monthly maintenance fees and no minimum balance restriction. In addition, you get 1800 free transactions per year. The process is flexible since nonprofits usually have more transactions in a particular season and fewer in others. 

The U.S. Bank also allows your nonprofit to have 300 free cash deposits per year. They are available across 3000 branches nationwide, so you need not worry! But in some locations, they do have a limited number of branches. So it’s advisable to check yours accordingly.

3. Wells Fargo

Wells Fargo is known to be the best option for smaller nonprofit organizations. Your first 50 transactions with the bank will be free per month. Additionally, you can deposit up to $3000 without any fee in a month. 

Being the 4th largest bank in the US, they are available across 8000+ branches nationwide. Naturally, you need not fret about banking services with Wells Fargo. However, you must maintain a minimum of $500 balance to avoid the monthly maintenance fee ($10). This often becomes a major turnoff for some small nonprofits.

4. M&T Bank

M&T Bank has a dedicated nonprofit checking option for small as well as bigger nonprofits. The best thing about banking with them is there are no limits on currency deposits. Your nonprofit gets 50 free transactions per month and must maintain a minimum of $500 balance to avoid the $7.50 monthly maintenance fee. Moreover, the nonprofit checking account comes with a free business debit card with chip technology.

Over To You

Selecting a bank is a major choice for a nonprofit of any size. The process isn’t complicated, but it does require some significant documentation and coordination between the organization’s officers. Not all banks offer the same perks and services, which makes researching your options crucial.

When researching banks, look or ask for ethical statements and standards designed to guide their behavior. These things will ensure your missions line up. Be sure to ask about the experience a bank has with nonprofits. Those with nonprofit banking experience and current nonprofit clients are much more likely to offer services and guidance that can help your org be successful.

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