TO:
Eastern Academy of Management Board
FROM: Laurie Levesque, Finance Subcommittee
DATE: May 2, 2014
RE:
Recommendation for investing funds
Proposal: EAM should invest a portion of its cash resources in business CDs at PNC Bank or TD Bank*
through a laddering system to allow for staggered maturations and better rates. [* Bank selected may
depend on which is easier for the Treasurer to get access to if account must be created in person.]
Term CDs provide the best rates for accessible funds. A reasonable breakdown is:
$30,000 in a 5-Year Term CD
$10,000 in a 4-Year Term CD
$10,000 in a 3-Year Term CD
$10,000 in a 2-Year Term CD
$10,000 in a 1-Year Term CD
$70,000
$25,000 in a 5-Year Term CD
$ 5,000 in a 3-Year Term CD
$ 5,000 in a 2-Year Term CD
$ 5,000 in a 1-Year Term CD
$40,000
Additional information:

Money market accounts earn less than CDs. The big difference is that the former typically allow you
to write checks from the amount (as long as you stay above the minimum). When EAM needs to pay
for a large expense (e.g., conference), the fact is that there are many checks to be written and the
check writing limit of a money market will quickly be exceeded. For that reason, it seems to make
sense to have a base amount in checking, then put the rest in CDs.

The CDs that are first to mature can be moved to the checking account if it seems that it is easier to
have more working cash on hand. The long term investments could then simply be reinvested when
the come due.

If one of the longer term CDs needs to be cashed in prior to its maturity date, the penalty is a
portion of the interest. This loss is acceptable as that invested money would not have been earning
interest in a checking account anyway. Access to the money earlier than planned suggests an urgent
need, and loss of interest seems acceptable for this convenience, should it be needed.

If deposits into multiple CDs are all made at the same time, then each year on the same date one of
them will mature (or more if the laddering system is maintained). This will make it easier for the
treasurer to reinvest the matured CD or move it to the checking account if needed.

Having all the investments through one bank will minimize the number of financial institutions the
treasurer needs to coordinate with (and teach the next treasurer about).
Suggested banks:
We need to select a bank that supports business accounts. The rates below were updated on May 2, 2014:
7-Year Term CD rate
5-Year Term CD rate
4-Year Term CD rate
3-Year Term CD rate
2-Year Term CD rate
1-Year Term CD rate
PNC
1.19
1.00
0.75
0.40
0.35
0.20
TD
0.90
0.65
0.50
0.30
0.20
Chase
0.55
0.55
0.40
0.40
0.25
0.15
Wells
0.35
0.35 (for $25k)
0.25 (for $10k)
0.20 (for $10k)
0.15 (for $10k)
0.05 (for $10k)
BANKS
PNC – small business CDs require only $1K minimum deposit. To open an account, must do so in
person, therefore treasurer would need to have a branch in his/her state. www.pnc.com 800-762-5684
TD – small business CDs require $5K minimum deposit. Tried to steer us away from 5 year CD since it
would lock us in and rates may be rising. But earning 0.20% for a few years in case rates go up seems
like a smaller loss compared to five years at 0.90% where the last two might be lower than market if
there’s a huge improvement. www.tdbank.com
Chase – Rates are for $10K minimum and require any linked business checking account except Public
Funds Checking, Chase Nonprofit BusinessClassicSM Checking, IOLTA/COLTAF/CARHOF and Client
Funds Checking at account opening and at each renewal.
Wells Fargo - Business Time Account CD earns a guaranteed rate of interest for the term you select.
Business CDs require a minimum opening deposit of $2,500. The rates above are related to a special
offer if opening CD with $5K. https://www.wellsfargo.com/biz/products/accounts/savings/time_account
GE Capital Bank – organizations invest in “commercial accounts” and those CDs each require a
minimum of $25,000. This would not work for our laddering proposal.
CIT Bank - the online consumer bank of CIT Group Inc. does not allow organizations to invest in CDs,
only individuals.
Bank of America – Standard Business Longer Term CD seem restricted to 0.01-0.15% . Other CDs offered
to business are 1 year or shorter. https://www.bankofamerica.com/smallbusiness/cd-savings-accounts.go#CDs_Heading
US Bank – has business CDs. The terms included this, which didn’t seem in keeping with other banks
that let you roll over the CD with same terms or choose another term/rate: “Offer good for the initial
term only. CD is automatically renewed for the same term into a Standard CD based on the published
rate for the closest standard term that is equal to or less than term of the CD.”
https://www.usbank.com/small-business/savings/business-cds.html