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Getting Cash Management 'Just Right'
Wednesday, March 1, 2017 6:35 AM

Justin Lutes, AAP, NCP, Vice President, Correspondent Services, Catalyst Corporate FCU

In “Goldilocks and the Three Bears,” the protagonist searches for the perfect bowl of porridge. One bowl is too hot. The next is too cold. The third is just right. While the consequences of porridge that isn’t “just right” can range from an unpleasant meal to a burnt mouth, the consequences of cash management that isn’t “just right” can include everything from displeased members to missed opportunities to earn more income.

Over the last decade, the Fed has increased the interest rate just twice. And because of that, overnight funds haven’t had an opportunity to earn significant interest. But with some economists predicting two, maybe even three hikes in 2017, credit unions will want to take another look at their cash management strategy.

The danger of having too little cash on hand is obvious: running out of cash at branches or ATMs does not make credit unions or their members happy. But with too much cash on hand, especially with rising interest rates, credit unions are missing an opportunity to capitalize on an interest-earning asset.

So, how can credit unions find that “just right” balance of cash to keep on hand?

Consider more than dollar amount.
Just because you’ve always used one approach to managing your cash, doesn’t mean it’s still the best, especially once interest rates rise. Look beyond basic numbers and evaluate your credit union’s cash historical trends, delivery schedule, and member demand. Considering factors beyond dollar amount will move your credit union closer to that sweet spot.

Plan ahead.
Demands are not the same every week. When your credit union needs to have extra cash on hand (i.e., sponsor is hosting an event, etc.), plan ahead so that you’re prepared with the right amount and denominations. Just remember, when those special circumstances pass, reevaluate your needs to ensure your credit union has optimal cash levels.

Look at the big picture.
Benefits of accurate cash management extend beyond potential earned interest. When you order the right amount from the get-go, your credit union can reduce armored car delivery expenses and cash order exceptions. And cash management services, like Catalyst Corporate’s Vault View, streamline the order process and reduce branch labor by centralizing cash management. 

It’s only natural to want to avoid the pain of too little by keeping too much on hand. But following these tips can help credit unions determine their “just right” amount.