Dueling Balances

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Dueling Balances
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Public Funds Cash Management

• Or How to Maximize Available Funds at the Best
  Rate

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Would you rather earn 3 or 5 on your available
funds?

• If you pay your bank with compensating balances,
  expect to earn about 3 on only 90 those
  balances (the bank holds back 10 non-earning).
• If you pay fees and maintain a zero collected
  balance, those balances could be earning 5 in a
  money market fund (plus you get to use all the
  funds!)

or
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Paying Bank Fees with Compensating
Balances(Would you rather earn 3 or 5 on your
available funds)

• If you pay your bank with compensating balances,
  expect to earn around 25-50 basis points less
  than the overnight fed funds rate on only 90 of
  those balances since the Federal Reserve Bank
  requires a 10 reserve on all of the banks
  deposits.
• You may negotiate this rate based on your daily
  balance requirement. The bank will usually pay
  on the average daily balance for the entire
  month.

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How Does a Fee Based Account Work?

• The goal is to maintain an average collected
  balance of zero.
• Youll need to track your daily balances on a
  spread sheet
• Most banks look at monthly averages, although
  some calculate on a daily basis (be careful
  because you may be charged for a daily
  uncollected balance) .

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Cash management tools for hitting a target
balance, zero or otherwise

• Use controlled disbursement.
• Use Zero Balance (ZBA) Accounts.
• Take advantage of bank reporting (balances,
  float, lockbox, controlled disbursement, ACH
  reports).
• Track daily payroll to determine averages.
• Pay by ACH Debit vendors by ACH.
• Have cashiers total on-us items each day for
  immediate availability.
• Have your account swept every night.
• Keep an accurate calendar always visible to track
  maturities and other major money movements
• Check your money fund balances every day so you
  know you have enough for unexpected outflows.
• Have a bank that is understanding about you
  occasionally going uncollected (but not
  overdrawn!).
• Have a Fed Wire notification service (email
  preferred) from your bank.

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Controlled Disbursementstep by step

• Draw checks on your Banks CD Branch
• Mail your checks to the vendors
• Vendor deposits check at their bank
• Vendors bank sends check to nearest Fed
• Fed presents check to your CD Bank by 700am
• CD bank reports all presentments to you by
  1000am
• You arrange funding for that days presentments
• Notes
• Even though your regular bank and your CD bank
  usually have the same name, they are essentially
  two different banks with different routing
  numbers.
• For that reason, you cant use a CD account for
  payroll since employees couldnt cash their
  checks at the local banks.
• Baltimore Montgomery Counties have paid all its
  vendors from a CD account for over five years and
  have never had a complaint.

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Zero Balance Accounts (ZBA)

• This is using one main account to automatically
  fund various accounts at the end of a business
  day. This allows you to fund or invest from a
  single concentration account each day.
• Concentration Account
• Payroll
  Disbursement Collection

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Sample Spread Sheet for Calculating Daily
Available Cash
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Sweep Accounts

• As the last transaction of the banking day, your
  bank can either sweep any available balances into
  an overnight investment account or liquidate
  invested funds to cover any shortfalls for that
  day. This is an excellent alternative if you are
  unable to employ the previously mentioned cash
  management tools.
• Generally, the yields are better than earnings
  credits, but less than money funds.

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Collected Day of Cumulative
Monthly Avg Date Balance Month
Balance Balance
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Some ways to lower your banking costs

• Use ACH for payments instead of Fed Wires and
  checks (approximately 5 vs 8.00 vs 1.95)
• Get images back of cancelled checks instead of
  paper (usually cheaper).
• Use ACH debit blocks and filters (to protect
  against fraud).
• Stay one step ahead of the bad guys. Use positive
  pay, electronic debit filters, and a new product,
  UPIC (where the bank gives dummy account
  information to vendors for ACH credits so you
  dont have to give vendors your bank
  information).
• Fewer accounts cost less consolidate whenever
  possible.
• Review your Account Analysis every month and meet
  with your banker regularly.
• Bid your business out regularly for competitive
  bid or piggyback off of another agency in your
  jurisdiction.

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Whats Right for you?

• Paying fees is generally the most effective means
  to compensate your bank, however..
• Doing so can be contingent upon your available
  time, your banking budget, and investment
  portfolio size.
• Talk to your bank see what on-line cash
  management services they offer and if they have a
  cash management officer to work with you.

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In Conclusion

• Somebody is going to make money off of your
  governments money. Do the best you can to make
  sure its you and your taxpayers, and not your
  bank.