In the United States, a nonprofit business generally is allowed to earn interest on a checking account, and some banks even offer interest-paying checking accounts specifically for nonprofits. Interest checking for businesses was limited in general by a Federal Reserve rule called Regulation Q, though this was essentially repealed in 2010. Nonprofits are generally required to report their income sources, including interest and dividends, to the Internal Revenue Service and, in some states, to state authorities.
The IRS does permit non-profit organizations to utilize an interest-bearing checking account.
Some banks pay interest on checking accounts as a way to entice customers to choose their services. Various banks, including US Bank and Park Bank, specifically offer checking accounts paying interest to nonprofit organizations.
Prior to 2010, when the Dodd-Frank Act was passed after the 2008 financial crisis, banks were limited in when they could pay interest on checking accounts under a Federal Reserve rule called Regulation Q. The regulation didn't apply to other types of accounts, such as Negotiable Order of Withdrawal, or NOW, accounts or money market accounts that could also offer services similar to checking accounts. That led some customers, including businesses, to prefer those accounts or to regularly shift funds out of checking accounts to other types of accounts that did pay interest.
Once the regulation was repealed, banks becamemore free to offer interest checking, including to nonprofit and for-profit businesses, and many have since elected to do so.
Even though they're largely exempt from taxation, nonprofits are generally required to file annual returns with the IRS. Tax Form 990 is the main form used for this purpose, and there are simpler variants such as the 990-EZ for charities meeting certain requirements, similar to the various 1040 variant forms for individual taxpayers.
These forms are generally made available to the public for review, unlike individual and business tax forms which are considered confidential. There are generally penalties for nonprofits that don't file accurately and on time.
The 990 form requires charities to disclose how much income they made from various sources, including "dividends, interest and other similar amounts." Anyone keeping the books for a nonprofit should keep track of how much interest the organization has made from its checking accounts and anywhere else to record this information on the 990 form. If you're not sure how much interest was made from a given account, you should be able to get this information from bank statements, online banking or bank customer support.
Some states require nonprofits to file financial information as well, so if you're involved with organizing a nonprofit, it's worth checking with your state to see what information you're required to disclose.
- US Bank: Nonprofit Checking Account
- Park Bank: Nonprofit Interest Checking Account
- Regulation Q - Wikipedia
- IRS: Form 990
- IRS: Form 990 Instructions
- All Business: Regulation Q
- IRS: Form 990-EZ
- IRS: Copies of Scanned Exempt Organization Returns Available
- National Council of Nonprofits: State Filing Requirements for Nonprofits
- Consumer Financial Protection Bureau. "What Is the Difference Between a Checking Account, a Demand Deposit Account, and a Now (Negotiable Order of Withdrawal) Account?" Accessed Oct. 3, 2020.
- Federal Deposit Insurance Corporation. "What's Covered." Accessed Oct. 3, 2020.
- Federal Deposit Insurance Corporation. "High-Yield Checking Accounts: Know the Rules." Accessed Oct. 3, 2020.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.