Three ways governments can maximize funds in the current rate environment

Three ways governments can maximize funds in the current rate environment

Three ways governments can maximize funds in the current rate environment

Three ways governments can maximize funds in the current rate environment


Budgeting for interest income the past year has been a challenge to say the least. After three cuts in the federal funds rate during the second half of 2019, plus the sudden drop of an additional 150 basis points in March 2020, we are now 225 basis points lower than two years ago. Consequently, public entities experienced an unexpected, substantial reduction in interest income. The Federal Reserve Bank has indicated several times this year, most recently at its April meeting, that it expects to maintain the current target rate of 0% - 0.25% through 2023. Since those lost dollars will not be materializing anytime soon, here are a few recommendations on what you can do to ensure your funds are working to their full potential.

Review your investment policy and collateral requirements
Although safety of principal should always be the first priority of a public entity, the collateral requirements in your policy may be limiting your access to higher yields. Talk with your banking and investment partners about what is reasonable, in terms of both allowable securities and the percentage of collateral required, as both can affect yield. Many financial institutions have adjusted their approach to collateralizing deposits as a result of regulatory policies on how collateralized funds affect the liquidity ratio of the institution. Recommended best practice is to review and update your policy at least every two years. Not only will this verify that the individuals assigned to the management of funds is still current, but it will also allow you to adjust any investment strategies based on the rate environment or changes in investment types allowed under state statute.

Confirm that you are maximizing your Federal Deposit Insurance Corporation (FDIC) coverage
The FDIC allows balances in transactional checking accounts to be insured separately from interest-bearing accounts, including certificates of deposit (CDs), savings accounts, and money markets, as long as the funds are placed in an insured financial institution within the same state as the public depositor (Section 330.15 of the FDIC’s regulations). This would typically allow a public depositor up to $500,000 in coverage at one bank.

By utilizing Wintrust’s MaxSafe® Public Fund accounts, however, you can receive up to 15 times the typical FDIC insurance coverage for your deposits. Funds are spread across Wintrust’s 15 separately chartered, affiliated banks, all of which are FDIC insured and deemed “well capitalized” by regulatory agencies. By maximizing FDIC coverage at each of the banks, the MaxSafe® Public Fund accounts minimize the need for and cost of traditional collateral, ultimately increasing your rate of return. Plus, depositing funds in a MaxSafe® account simplifies your reconcilement process, since all the funds are held with one financial institution, and you receive one account statement. Please contact us for details on the total amount of coverage the MaxSafe® Public Fund accounts would provide your agency.

With the flattened short end-of-the-yield curve, it may be tempting to keep the majority of your funds liquid. While there is only a difference of five basis points or fewer between overnight and 12 month maturities, there is the potential for an increase of 10 to 20 basis points between one and three year maturities. In reviewing your cash flow projections, do you have any funds that can be invested out longer than two years? Your individual investment policy parameters will define your maximum maturity and diversification limits.

Review your current account structure and how transactions are processed
This will reveal any idle funds in transactional accounts and highlight any inefficiencies in your processes that could be replaced with cost-saving services. Can you reduce the number of transactions you process or move to more cost-effective electronic payment methods? How does your earnings credit rate compare to rates on money market accounts or other short-term investments? In a low-rate environment like today, you may determine that it is more beneficial to take advantage of a higher earnings credit rate to offset service charges, than earn a nominal interest rate on your operating funds.

We recognize that all governments are struggling to make every penny count, and we are here to help. Although it appears we will have to endure this rate environment for several more years, regular conversations about your current practices may help you add a few extra dollars to your annual bottom line.

For more information or to see what our Wintrust Government Funds team can do for your institution, visit

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