With higher interest rates, it’s a great time to use certificates of deposit (CD) in your charitable giving strategy. There are a few ways to give a CD to the nonprofit organization of your choice and all it takes is a few more steps than if you were to open a CD for yourself.
Certificates of Deposit for Nonprofit Organizations
Nonprofit organizations can effectively grow their funds and manage liquidity with CDs. CDs provide nonprofits with the benefit of higher interest rates and great returns. In addition, insured financial institutions provide FDIC or NCUA insurance up to $250,000 based on CD ownership type. This low-risk financial tool is ideal for setting aside money for future projects or expenses, with the option to ladder CDs for staggered access to funds. Collaborating with banks that offer tailored services and terms can further help nonprofits optimize their financial management and demonstrate fiscal responsibility to stakeholders.
Ways to Contribute CD Funds to Charity
Opening a CD Under a Nonprofit’s Name
Sometimes, donors want to ensure the funds they give are invested safely. Gifting a CD to a nonprofit is an easy way to accomplish this objective. Opening a CD under a charity’s name is one option. The first step is obtaining the organization’s tax identification number and approval from the organization to open the account. The organization will need to provide you with a letter on official letterhead or provisions in their bylaws for Proof of Authorization, full organization documents, identification of the organization’s authorized signers, and full customer identification of the authorized signers to ensure they are who they say they are. Once the account has been opened, ownership of the funds will transition from you to the organization. While this has some extra steps involved and may take more time and persistence to speak with the right people to gain access to all the necessary documentation to open the account, it can accomplish your objective.
Be sure to speak to your chosen organization directly to ask if they will accept CDs opened on its behalf before you start the process of opening a CD under its name.
Naming an Organization as CD Beneficiary
Designating an organization as the beneficiary of your CD is a straightforward way to support its work. You can gift it to an organization Payable on Death (POD). You’ll need to designate one or more charities as the beneficiaries of the CD funds once you, the account owner, pass away.
However, until you are deceased, the beneficiaries will have no rights to the funds, and you will remain in control and are free to use the money, reinvest it in another CD, change the beneficiary, or close the account.
Setting up an organization as a beneficiary streamlines the administration process as the executor or administrator of your estate will not have to take action to ensure that your account transfers to the designated beneficiaries.
By naming an IRS-qualified individual(s), organization (s), or nonprofit(s) as the beneficiary, it qualifies for FDIC insurance coverage up to $250,000.
Ask your bank what steps need to be taken to place a POD designation on your CD.
Donating CD Funds, the Old-Fashioned Way
Lastly, you’ve found a rate with terms that will help your principal grow into the amount you’d like to donate to your charity. Locking in a rate and term and waiting to pull CD funds out once it has matured and reached your target amount is a simple way to donate more to the causes you care about most.
Donating Interest Earned on the CD
However, if you only want to donate the interest earned on the CD and retain the CD principal, you can set up monthly, quarterly, or at-maturity interest payments to your favorite nonprofit by check or ACH depending on the terms of your CD. This will be set up to go directly to the charity of your choice. Please note that if you withdraw the interest on a monthly or quarterly basis, the CD will not earn the full annual percentage yield (APY).
Leveraging CDs to Grow Your Donations
Whichever way you choose to give your CD as a charitable donation, you can know you are funding a great cause, and your contribution may be tax deductible. Consult your tax adviser as part of your due diligence, to learn about potential tax benefits to your donation.
FAQs
Who can be gifted a certificate of deposit?
You can gift a CD to individuals or organizations. Gifting a CD ensures secure and ongoing interest growth. For charitable gifts, consider opening a CD directly under the charity’s name or designating the organization as a beneficiary for the funds posthumously. Always check with your bank for specific procedures related to CD gifting
Is my contribution tax-deductible when donating a CD to charity?
Consult your tax adviser for information on potential tax benefits associated with your charitable donation.
How does naming a nonprofit as the CD beneficiary streamline administration?
It simplifies the transfer process upon your passing, eliminating the need for the executor to take action.
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