Branch Investing: Thankful for the Bright Side

Branch Investing: Thankful for the Bright Side
By Brian Wagner
NAPS Immediate Past President

There has not been much of a bright side for NAPS branches and their members due to the COVID-19 pandemic. Branch meetings and activities have been canceled or limited over the past two-plus years. One bright side is branches may have higher balances in their treasuries.

As such, there also may be a brighter side for branches to earn higher rates of return with the extra funds in their treasuries. Here’s the scoop.

Not long ago, I received an email from a branch treasurer regarding their branch having extra funds in their treasury as a result of not having meetings, state conventions or other NAPS social events due to COVID.

The branch’s executive board thought it might be a good idea to invest the additional funds with an investment company. The treasurer said they were aware of their responsibility to manage the branch treasury and wanted to do what was best for the branch and its members.

Besides being concerned about paying investment fees, the treasurer was concerned about the current volatility of the stock market and possibly being liable if funds were lost due to a bad investment. The treasurer asked for advice on how the branch could best invest the funds. For you baby boomers, my response may feel a little like “Dear Abby.”

First, please note that when I refer to the “treasurer,” I also am referring to the branch secretary/treasurer. Whether you are a branch treasurer or secretary/treasurer, you have an important leadership role in protecting branch funds.

Second, having additional funds in your branch treasury is a good thing. It is easier to plan and budget for current and future branch activities and national NAPS events.

Third, Chapter 4 of the NAPS Officer Training Manual (OTM) pertains to the duties of the treasurer. The chapter references the branch treasurer’s job description and duties, which include investing funds and managing the branch’s finances and bank accounts. Specifically, Chapter 4 of the OTM reads:

“Maintenance of funds. The treasurer shall maintain the funds of this branch in a recognized federal- or state-insured financial institution approved by the executive board. Sufficient funds shall be maintained in a checking account. Other funds beyond immediate need shall be placed in an interest-bearing account (i.e., savings, money market, certificate of deposit).”

As referenced above, savings and money market accounts and certificates of deposit (CDs) are fiscally responsible financial accounts to ensure protecting the branch’s treasury. Please note: A CD is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year or five years. In exchange, the issuing bank pays interest. When you cash in or redeem your CD, you receive the money you originally invested, plus any interest.

Fourth, if a branch is seeking to invest a portion of its treasury in stocks, bonds or mutual funds, be advised that investment fees may be incurred. Also, such investments have more risk and the potential for financial loss. There is an opportunity for gain, as well, but a branch must weigh the costs/benefits of investing branch funds in higher-risk investments.

Fifth, it may be best for a branch to stick with a more conservative approach of self-managing their treasury by diversifying their funds among the following non- and interest-bearing accounts: checking, savings, money market and CDs. As referenced in the OTM, a branch should have a sufficient amount of funds in the branch checking account to conduct daily, weekly and monthly business. It would be reasonable to have a modest percentage of the treasury in a corresponding savings account to cover any possible checking overdrafts and unexpected disbursements.

The next challenge for a branch is determining when it will need funds to cover larger expenses, such as attending a state convention, area or regional training, the Legislative Training Seminar (LTS) or national convention. Most branches approve an annual budget. However, when planning to invest funds in a money-market account or CD that may require long-term investing, a branch must project future cashflow needs.

Therefore, instead of doing just an annual budget, it would be wise for the treasurer to prepare a three-year budget. The first year is the branch’s approved budget; the following two years are forecast budgets to project the cashflow needed to fund future expenses and activities.

Once a branch has determined its cashflow schedule and the checking and savings account balances are at a comfortable level to cover normal branch business and expenses, the branch could start investing the remainder of their treasury. Investment vehicles include higher-yield, mon-ey-market accounts with check-writing privileges and one or more CDs with varying maturity timeframes.

Sixth, the treasurer, with the counsel of the branch’s executive board, needs to determine a reasonable amount that should be deposited in the money-market account. After that decision has been made, the amount remaining in the branch treasury could be spread among one or more CDs with maturity timelines of six months or one year or longer—depending on what a financial institution offers. Some financial institutions require a minimum deposit for CDs with specific maturity timelines.

By staggering maturity timelines between multiple CDs, a branch can create a consistent cashflow while receiving a higher rate of return on funds. For example, a branch may deposit $1,000 in a six-month CD, $10,000 in a 12-month CD and $5,000 in a five-year CD. A branch may have a sufficient balance in their treasury to invest a larger amount in longer-term, higher-yielding CDs without creating a cashflow issue.

Seventh, although not referenced in Chapter 4 of the OTM, U.S. Treasury Bonds also are an option. Page 19 of the August 2022 issue of The Postal Supervisor offers an informative “The NAPS Postmaster” column by Joseph O’Donnell that discusses investing in I-bonds. Fortunately, a business such as a NAPS branch with an employer identification number (EIN) or taxpayer identification number (TIN) is eligible to purchase I-bonds.

If a branch is comfortable with the risk of buying I-bonds in the name of the branch, it is important to know that I bonds include a one-year lockup before the bonds can be redeemed. Also, there is a five-year holding period before the bonds can be redeemed without a three-month, interest-rate penalty. Series I savings bonds have a total lifespan of 30 years. A branch with a short-term time frame should be aware of the required lockup and holding period.

Again, investment decisions depend not just on a branch’s current and future cashflow needs, but on how much risk the branch is willing to take when investing specific amounts over the long-term with an anticipated return-on-investment.

For the record, I hold a certificate in financial planning and an MBA and a degree in finance. I proudly served six years as NAPS secretary/treasurer, guiding and counseling branches on how to file for non-profit status and nonprofit income tax returns and audit their treasuries. The branch investment strategies I have referenced should be regarded as information only and fiscally responsible options for a branch or treasurer to consider when seeking a higher return on branch funds with minimal risk.

Finally, I encourage all branch treasurers and secretary/treasurers to do their due diligence and contact a licensed investment advisor, local bank or credit union. Consider contacting NAPS Headquarters’ credit union—Signature Federal Credit Union at SignatureFCU.org—to find out what low-risk, higher-yielding investment options are available.

On an even brighter side, as November is a month to give thanks, I want to thank all our military men and women in uniform for protecting our great country. Many thanks to our military veterans for their service and to families who have lost loved ones while defending our freedoms. May all NAPS members and their families have a happy Thanksgiving.

I also am thankful there is no risk, only minimal weight gain, with my ice-cream-flavor-of-the-month recommendation: Turkey Hill pumpkin cookie dough.