Recent federal takeovers of two regional banks and instability in others in recent weeks triggered sleepless nights for many, including charter school leaders. Ongoing instability in the banking industry, combined with high inflation and higher-than-usual interest rates means charter school leaders would be wise to review their banking and treasury arrangements. While federal officials took action to safeguard depositors at two banks, they have waffled regarding ongoing depositor protection and all the while banks continue to borrow heavily from the Federal Reserve’s discount window to maintain liquidity.
Until recently, interest rates were so low that investing cash seemed pointless and many charter business officials paid correspondingly little attention to growing cash reserves. However, higher interest rates and bank instability now beg closer attention, especially if a charter school or management organization has deposits above the standard deposit insurance coverage limit of $250 thousand in a given bank.
This article provides an overview of “low-risk” cash investment options for charter schools and CSDC’s current suggestions on how to manage your charter school nest egg.
Risk is unavoidable, but partially manageable.
There is no such thing as a risk-free investment strategy.
Most investments, especially in stocks and other equities, involve substantial risk to the initial investment (principal). Supposedly safe investments such as certificates of deposit (CDs) and United States Treasury Bonds (Treasuries) may preserve principal, but come at substantial risk for erosion by inflation. Like all investors, charter schools must balance these and other risks and make the best choices...