Lock In Today’s Rates for School District Cash

As a school district leader, you’ve probably devoted significant time and energy to helping your bond referendum pass or building your Fund 46 account. Both of these are generally large sums of money, so you need a cash management plan that ensures safety, accessibility, and a competitive return. Safety and accessibility are features of many accounts, but maintaining the most competitive return requires constant attention.

How Do Interest Rates Impact School District Funds?

The interest you earn can help your cash keep pace with inflation and even fund other projects. However, school districts often hold cash for years which leaves a lot of time for cash yields to change. These uncertain yields make it difficult to project future interest that will be earned.

To make matters worse, the Fed recently lowered the Fed Funds Rate. This rate is one of the factors that determines cash yields. In fact, certain short-term CD yields have historically mirrored the Fed Funds Rate almost perfectly.

Fortunately, there are ways to combat declining interest rates such as choosing investments with a fixed yield. Some investments even allow you to lock in today’s rates for the entire length of your project.

Which Options for Investing Cash Allow You to Lock in Rates?

There are many ways to invest school district cash, but not all of them are created equal. Savings accounts, money market accounts, and money market mutual funds all provide safety for your cash, but they typically have variable interest rates – meaning those rates are subject to change at any time.

On the other hand, there are two main types of investments suitable for bond proceeds or Fund 46 accounts that have set interest rates – meaning their yields do not change for a set period. These are U.S. Treasuries and Certificates of Deposit [CDs].

U.S. Treasuries

Treasuries are debt instruments issued by the federal government. As such, they are considered extremely low-risk investments. In turn, they offer low returns.

These investments are offered for a specific length of time and pay a set interest rate over the course of that term. During the term, the value of a Treasury security is variable, however, meaning you may be able to sell it for a profit or a loss.

Certificates of Deposit

CDs are a type of account offered by banks, credit unions, or other financial institutions. Overall, they are considered slightly higher risk investments than Treasuries because they are not issued by the federal government. However, this risk is mitigated when you invest with an FDIC member bank or NCUA insured credit union.

These government agencies provide protection for up to $250,000 at each covered financial institution. Therefore, with CDs you can gain the additional return associated with a slightly higher risk investment without accepting that risk.

Like Treasuries, CDs are issued for a specified term and pay a set interest rate. However, these investments differ from Treasuries because they generally aren’t traded on a secondary market. If you need to redeem a CD early, you may owe a penalty, but the value of your initial investment remains the same.

How Do You Lock in Rates?

To lock in today’s rates for your cash, you need to purchase an investment with a fixed term – or multiple investments if you choose to implement a laddering strategy. This may seem straightforward, but it becomes more complicated when combined with the need for full government protection.

To achieve full protection for your CDs, you could open accounts with multiple government insured banks or credit unions and invest up to the $250,000 limit with each institution. However, this process isn’t feasible for most school districts since it requires a significant investment of time.

A simpler option is partnering with a specialized company that can manage cash investments on your behalf. When evaluating such companies, there are several important attributes that you should seek:

1. Any partner you choose should be registered with the MSRB. Then, you can rest assured that they have a fiduciary duty to act in your best interest and are familiar with your type of organization.
2. Your partner should handle the day-to-day investment tasks like locating financial institutions and moving cash. They should also manage other tasks related to your bond including arbitrage rebate compliance, automated payments, and regulatory filings.
3. Your chosen partner should provide access to government protection for all your funds, nationally competitive yields, and liquidity to meet any unexpected needs.
4. Your partner should be a trustworthy company with plenty of experience to back up their reputation.

Fortunately, this choice is simple – partner with American Deposit Management [ADM].

Partner with ADM For School District Cash

At ADM, we are experts at handling bond proceed management and Fund 46 accounts, so you can focus on your school district. Our experienced team manages the day-to-day activities like investing proceeds, arbitrage rebate compliance, regulatory filings, and automated vendor payments. Our modern cash solutions also provide access to full government protection and access to your funds when they are needed. As a valuable bonus, our accounts have generated over 8x more income than the national average money market account since 2022.¹

For more information on how we help school districts succeed, download our whitepaper for school districts. Then, contact our friendly team to discuss your unique situation and needs.

¹ADM vs. FDIC Money Market National Average. Since 2022. Rates taken from the FDIC’s monthly publication of Money Market National Deposit Rates from 2017 through 7/1/2024. ADM Cumulative Interest is calculated using the 30/365 convention with an original investment of $1,000,000.00 and compounded over the number of months in the comparison period. Net rates are actual delivered rates of a sample client account during the comparison period.

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