What is a business checking account for nonprofits?
A business checking account for nonprofits provides tailored services to help you manage your money efficiently and effectively.
Some banks may let you use treasury services for a small fee if you are unable to hire someone in-house. Other banks offer special discounts if you keep a minimum balance or give you a set number of free transactions a year.
Do you need a business checking account for a nonprofit?
Nonprofits should consider opening a business checking account to collect revenue and donations. To be considered a nonprofit the IRS will provide you with an ‘Exempt Organization’ status.
Types of organizations that can be considered nonprofit include churches, public schools, public charities, volunteer services organizations, museums, governmental agencies, and public hospitals.
What are the pros and cons of a business checking account for nonprofits?
There are many pros and cons of opening a business checking account for nonprofits. Here are a few for you to consider before applying:
Pros
- Separation of finances: Keeping personal finances separate from business finances is important when it comes to filing for taxes.
- Philanthropic support: Banks can be major charitable givers. Nonprofits that have a good relationship with their bank can benefit from sponsorship gifts and charitable donations.
- Discounted rates: Some financial institutions offer nonprofits discounted rates which can significantly reduce your operational costs.
Cons
- Minimum balance: Banks can require you to maintain a minimum balance in your business checking account. If you’re a small nonprofit or you’re just getting started, this requirement may not be easily met. You could be charged a fee for going below minimum balance requirements.
- Social responsibility: Financial institutions can have social and ethical guidelines that may conflict with the mission and values of your nonprofit. When looking around for a bank, it’s a good idea to read through their corporate and social responsibility guidelines to ensure that your values are aligned.
- Fees: The benefits of philanthropic support can sometimes be eaten away by higher fees imposed by banks.
What are the fees for a business checking account for nonprofits?
When researching business checking accounts for nonprofits, it’s important to consider the fees imposed and how they might affect you. Here are a few fees for you to consider when looking into an account for your business:
- Monthly fees: These fees are charged to cover the maintenance costs of your bank account. Some banks charge zero monthly fees while others can charge $10 – $15 and waive the fee if a minimum balance requirement is met.
- Transaction fees: If your nonprofit is likely to have a high number of transactions, you’ll want to look for a bank that imposes a low transaction fee or provides a high number of fee-free transactions each month.
- Cash deposit fee: The majority of banks have a limit on the number of free cash deposits. After the limit has been reached, fees can range from 25 cents to 50 cents per transaction.
- ATM fees: After you have reached your fee-free limit of ATM transactions, fees may apply.
- Paper statement fees: Many banks allow you to opt out of paper statement fees when you choose to receive online statements.
- Overdraft fees: If your bank offers overdraft protection, you may be charged a fee for using overdraft facilities.
Fees can quickly add up over time. When considering a business checking account, ensure that you have read the terms and conditions so that you’re fully aware of any fees that may apply.
How to open a business checking account for nonprofits?
To open a business checking account as a nonprofit, you’ll need to have a letter of exemption from the IRS. Your bank will require that you select officers and a treasurer on behalf of your organization, plus any additional documentation.
If you haven’t received an ‘Exempt Organization’ status, you can open a business checking account, but you may lose benefits, discounts, and specialist services that apply to nonprofit organizations.
How to choose a business checking account for nonprofits
When looking for the best business checking account for nonprofits, here are some key factors to consider before you submit an application:
- Compare multiple providers: It can be difficult to switch banks once you’ve opened an account, so research is important before you sign up for a business checking account. You’ll want to compare benefits, fees, discounts, and any additional services provided by the banks. Keep in mind that as your nonprofit grows, your transactions are likely to increase and you may start to pay more on fees. Therefore, it can be a good idea to look for a bank with high limits on transactions to start with.
- Values and mission: Keep in mind the mission and goals of your nonprofit and research the corporate and social responsibility guidelines of banks to ensure that you are aligned.
- Bank experience: Some banks are more experienced with nonprofits than others. With a more experienced bank, you’re likely to receive specialist guidance that can help you with the day-to-day running of your nonprofit and management of finances.
- Local banks and credit unions: In-person branch support can be valuable and help you build a relationship with your bank. Consider your options for local banks and credit unions as you may be able to receive financial support and grants for projects that benefit your local area and support the local community.