by Joe Rulison | Jan 23, 2018 | Banking Relationship, Banking Trends, Safety vs. Complacency
A couple of weeks ago, a government banker was voicing frustration after learning that her bank lost a Request for Proposal (RFP) bid to another bank that claimed that their services were free; that bank had submitted a “zero-fee”-based bid for all its bank services.
She wondered if the comparison between both bids was fair, especially when beneath the surface there was a big difference in actual costs. For her bank, its fees were clearly stated while the competitor’s bid offered so-called “free banking” but actually required much higher bank-deposit balances. The end result: There were actually much higher costs in the latter bank’s services when all was said and done.
So how does one compare bank fees and deposit requirements when evaluating competitive bank RFPs?
My answer is that it all lies beneath the surface when it comes to the level of bank balances required to be kept on deposit.
In most bank RFPs, banks will separate out the price per item of its services. The number of items that have separate fees could be numerous. Some may be direct “hard” fees. Others may be embedded “soft” fees which are covered by Earnings Credit Rates (ECRs) that average in the range of .50 to .90%.
You may also see RFPs that promise “free banking” while requiring 200% to 300% more in deposits and offering much lower ECR levels (often in the .05% to .20% range). Such RFPs could cost an entity tens to even hundreds of thousands of dollars in added costs or in lost interest-earning opportunities.
As interest rates rise, the disparity between both strategies will widen drastically with an average ECR envisioned to be well above 1.00% by year-end.
Bottom line, when comparing bank RFP bids, be aware that “free banking” bids could cost you a lot more than those with clearly stated fees.
Let’s be honest. Banks do play an important role in serving public entities and the communities they serve, but it does not come for free. When reviewing RFP bids from competing banks, they must be compared diligently and critically to understand the true cost of banking.
At three+one, we know government banking since we are public officials and former government bankers. Nationwide, our clients are primarily public entities and higher Ed institutions.
When discovering the true costs of banking services, competitive RFPs have you comparing apples to oranges. We have extensive experience in evaluating and assessing banking RFPs. Time and again, our fair and agnostic analyses lead to entities gaining more advanced banking services at lower costs and with higher earnings on bank deposits.
In the end we will make the comparison fair – apples to apples!
three+one in the News!
three+one was featured in The Daily News during a Genesee County, NY Ways and Means Committee meeting regarding the county’s increased cash performance.
Read the Whole Article Here
‘Also Wednesday, a consultant noted the county earned almost $320,000 in interest income for all of its funds in 2017 — a situation which is good news for its taxpayers, he said.
Garrett MacDonald, vice president of Three + One of Pittsford, a firm which worked with the county to analyze its cash flow, told the Ways and Means Committee the county earned $319,480 in interest last year on all funds and $242,134 in interest for its general fund.
“That’s what they booked in 2017. That’s what the county realized,” MacDonald said after the meeting. “This is a big deal for the treasurer (Scott German) helping taxpayers to earn more.
“Rates are going to continue to rise, which is certainly going to help interest earnings,” he said during Wednesday’s session. “I think next year, the county will be in excess of $500,000 in interest income.”
For 2016, the county earned $162,151 in interest across all funds, MacDonald said.
He said among the things Three + One looked at was the county’s cash flow optimization — making sure the money is earning interest at all times, from the time taxpayers pay their bills to when the county pays its bills.
“The taxpayers’ money has to be safe — to not lose principal,” he said. “The county earned the highest cash vest score. That’s a way of rating how well the county is performing in the treasury operations.
“It’s the taxpayers’ cash, in a sense,” MacDonald said. “We want to make sure the taxpayers are getting the most for the money they are paying to the county.”’
by sbarkley | Dec 20, 2017 | Banking Relationship, Cash Management Practices, News, Safety vs. Complacency
In less than one year (from November 30, 2016 to October 31, 2017) the City of Beaufort, South Carolina, with an annual budget of about $20 million, has increased its interest earnings on its cash by over 900%. Their earnings jumped from $13,801 to over $147,000, without sacrificing safety and while maximizing liquidity. The city’s overall cashVest® score increased by 26 points and its estimated interest earnings for the next 12 months should exceed $180,000.
Here are some ways they did it:
1. The city increased its Warnick Rate Indicator (WRI) by identifying the investment tool that best met its goals, realized a net increase in interest, and used time-horizon data to increase the amount of cash that was available. The result: the city earned more interest while it ensured the right amount of liquidity.
2. By ensuring 100% of all cash balances provided value, either by earning interest or offsetting banking fees, every cent of the city’s cash worked its hardest.
3. By reevaluating the relationship with its bank, the city ensured both parties would see it as mutually beneficial. The city lowered its banking costs, adopted new technologies that fit its needs, and modernized its banking structure.
4. Most importantly, the city’s finance leadership realized an innovative cash-management strategy could bring substantially more value to its taxpayers. And they took the proper steps to put this strategy into action.
No matter how much cash your entity has, where the cash is, or what the cash is earning, it is possible to earn more and save more on that cash. Don’t think it’s possible? Just ask the City of Beaufort.
Happy Holidays From three+one!!!
by sbarkley | Nov 15, 2017 | Cash Management Practices, Safety vs. Complacency
Last week Joe Rulison discussed the need to request a higher earnings credit rate (ECR) from your banks. As noted, the Fed Funds Target Rate has increased from the range of 0% to 0.25% in late 2015 to 1.00% to 1.25% in June of this year.
Yet during that 18+ month period the ECRs barely budged. Asking will help get you a better ECR, but it may not have an impact beyond that.
Asking is only the first step.
A higher ECR is only good to the degree you manage your balances to the correct level. Let’s walk through examples to illustrate the power of managing your balances.
Example #1:
Average Bank Deposit Average: $10,000,000
ECR: 0.25%
Annual ECR earnings: $25,000
Annual Fees: ($25,000)
Total Value of Cash: $25,000
Realized Gain: $0
In the above example, you completely offset your banking fees for the year. But with a higher ECR, you will need to lower your balances, or the effective ECR is still the same. Typically any excess earnings credit is not given to you in the form of interest; it is simply lost. Here is the example if you asked for and received a higher ECR:
Example #2:
Average Bank Deposit Average: $10,000,000
ECR: 0.50%
Annual ECR earnings: $50,000
Annual Fees: ($25,000)
Total Value of Cash: $50,000
Unrealized Gain $25,000
In this example, if you did not adjust your overall average balance, then the higher ECR did you no good. This loss is compounded when you realize you could be making at least 1.00% on your money when investing in the safest, most liquid investments, i.e., U.S. Treasuries.
Now let’s take a look at an example employing this strategy:
Example #3:
Average Bank Deposit Average: $5,000,000
ECR: 0.50%
Annual ECR earnings: $25,000
Annual Fees ($25,000)
Investment Balance: $5,000,000
Investment Rate: 1.00%
Interest Earnings $50,000
Total Value of Cash $75,000
Realized Gain $50,000
In this example, by properly managing your balance you’d increase the value your cash provided your organization by a whopping 300%!
However, doing this successfully requires good information. There are many variables that can impact ECRs, e.g., your relationship with your financial providers, and your ability to invest wisely without sacrificing safety and liquidity.
As always, the three+one team can provide you with all the information you need to be successful in maximizing the value of your cash. We look forward to helping you profit from today’s higher ECRs.
————————————————
We are pleased to welcome Lena Smith to the three+one team.
————————————————
by sbarkley | Oct 25, 2017 | Banking Trends, Cash Management Practices, Safety vs. Complacency
$20,000 to over $430,000
$50,000 to over $800,000
$7,000 to over $57,000
$45,000 to over $540,000
it goes on and on….
The proof is in the bottom-line results. Time and time again, the financial success stories we have reported were due to well-structured liquidity analyses.
Over the last 23 years, our team has been a pioneer in performing liquidity analyses for public entities and higher Ed institutions. Using our proprietary model, we are able to identify all levels of cash and ensure every last dollar is recognized as a revenue-generating asset.
Will liquidity analysis lead to greater interest earnings? The answer is without hesitation “yes.”
Since three+one is not a bank, financial advisor, or registered investment advisor, we work differently. Our analytical approach identifies patterns of your cash and considers a time horizon. We then determine a marketplace value on all levels of your cash. At that point the data is yours to share with your financial institutions. Using it, they can help you achieve higher yields—while adhering to all legal, safety, and liquidity guidelines.
The difference can add up in the tens to hundreds of thousands of dollars a year.
A liquidity analysis is not something you do once. Nor is it just an annual practice. Rather it requires a disciplined and independent perspective that you will want to live by.
If you have followed our blogs, you have seen how liquidity analysis can be the key to earning more on your cash. Together with your financial institutions and advisors, you will simply earn more on your cash. That’s the very definition of “win-win.”
The first step to a profitable liquidity analysis is your call three+one. You’ll see how stress free and easy we make the entire process, not only for you but for your financial partners as well.
by sbarkley | Sep 26, 2017 | Banking Trends, Cash Management Practices, Safety vs. Complacency
Can an entity be financially prepared for the unexpected disruption of its operations due to a natural disaster or another unfortunate occurrence?
The answer is clearly “Yes.”
In last week’s bog, I described my latest visit to our nation’s capital. I noted the strong sense of accomplishment by federal officials, acknowledging the well-coordinated efforts of local, state, and federal responders to communities affected by Hurricanes Harvey and Irma.
Now with all the media attention down to a whisper, one might ask “what’s next ” for those still-reeling communities.
The Federal Emergency Management Administration (FEMA) serves as the primary federal agency in the management of emergency assistance to local communities. Their process can take countless months to years for reimbursements, involve mounds of paperwork, multiple levels of approvals, and frustrating bureaucratic roadblocks at every stage.
At three+one we can help serve public entities and higherEd institutions at two levels:
First, our liquidity analysis and data will can factor in the “unexpected” for liquidity proposes when preparing your cash flow forecasting. Our independent perspective considers various stress levels to assure you that cash would be available when necessary, while also providing your financial institutions the data they need to balance between available cash and investments.
Second, our liquidity data can be used to project the “what ifs” in case of unforeseen disruptions. This information can help an entity like yours prepare before and assist during and after a disruption in operations.
A coordinated between you, your financial institutions, and three+one can lead to a seamless process with liquidity when needed—without jeopardizing safety or yield.
“What’s next” pertains to all public and private entities and can be unsettling. But, with the right help and strategy, they can become a normal process in your cash flow and liquidity planning.
————————————–
See Us At These Upcoming Events and Conferences:
GFOA SC – October
PA GFOA – October
by sbarkley | Aug 1, 2017 | Safety vs. Complacency
Liquidity analysis is a science that three+one has brought to the public and higherEd marketplace over the last several years.
The term “liquidity analysis” has been popping up and used loosely to describe cash flow management. While both terms are intertwined, they are different.
Liquidity analysis provides a deep-dive approach into determining an entity’s need of cash at any given time while managing the asset of cash through various investment alternatives.
Cash flow management is the ability to determine the flow of dollars in and out of an organization that will determine daily, monthly, quarterly, and year-end levels. For most entities, cash flow reports are created on a monthly or annual basis.
Liquidity analysis determines the time need, time horizons, and marketplace value of an entity’s cash while available, by dissecting each bank account and its correlation with a holistic perspective of all available cash. Liquidity analysis is also a composite of daily data, graphs, and charts that reveals both one’s cash flow needs and the value of its cash as an asset in the marketplace.
Over the last nine years the need to determine liquidity value was not needed since the short-term value on such funds was virtually non-existent. However, now that short-term rates are up, performing liquidity analyses can provide valuable insights on new sources of income and can help an entity better manage its cash.
A liquidity analysis cannot be determined on monthly cash balances alone. Rather, daily banking transaction patterns are required to determine the actual “float” available for cash needs as well as investment opportunities.
At three+one, we use our proprietary liquidity model, cashVest®, to determine cash patterns that adjust to anomalies or unexpected expenses. These data tell us the “stress levels” of all cash. In determining these levels, we’re able to provide an entity the minimum-to-maximum amount of time available for cash deposits and /or investments. This kind of information is invaluable to an entity’s bank and or investment advisor.
The better one’s liquidity is managed, the greater the level of yield that can be achieved on one’s cash. Now that this yield is averaging over 1.10%, it can be a significant source of annual income.
It’s unfortunate that so many public entities and higherEd institutions miss out on this opportunity.
A liquidity analysis is a process that takes time, expertise, and experience. At three+one, we have mastered a proprietary process that will change the way you view your cash flow and the value of your cash as a income-producing asset—without jeopardizing any legal, safety, or liquidity requirements.
If you wish to explore the proven value of a liquidity analysis, do not hesitate to contact us.
————————————
See Us At These Upcoming Events and Conferences:
NYSCTFOA Summer Conference – August
Ohio GFOA – September
GFOA SC – October
PA GFOA – October
