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How to Maximize Your Interest Earned

Do you remember the days of 6-percent Certificates of Deposit over a 30-day period? Oh, those were the best of times for making money with interest. But today, the options for investing municipal money are very limited, and for good reason. The risk of losing taxpayer dollars by poor investments is too great to ignore, and the law recognizes the risks. So how can one maximize the monthly interest earned and remain compliant with state mandates?

To put it simply, keep as much cash from your various investment funds in lawful Money Market accounts so that you can get the best interest rate for a monthly period.

Most banking institutions offer a Money Market account of some type. The problem is that most require a minimum amount to achieve any interest. It’s worth noting that the interest rates of the past are just that – in the past. But you can still leverage Money Market accounts to generate strong interest rates by today’s standards. This can be particularly beneficial to smaller to midsize municipalities.

Let’s break this down and see if this will work for your municipality. First, you will need to find a financial institution that has the appropriate account type and no transaction-related fees. You will need to also ensure, with the help of your solicitor, that the Money Market account uses the right (lawful) types of investment vehicles. Then you can get started.

At the beginning of each month, the township is presented with a list of bills that need to be paid. Now, my township met only twice a month and typically paid the bulk of invoices at the first meeting. So, if you have a Money Market account, you obtain the monthly interest earned and then split that interest earned among all of your funds that are deposited into the Money Market. For example, you most likely have a general fund, a state fund, and perhaps a sewer and water fund as well. Any fund can be part of the Money Market as long as you distribute the monthly interest to each fund. This is done according to the amount from each fund that was held in the Money Market. A simple Excel spreadsheet can breakdown for you within seconds.

The total of each fund, plus the interest earned for each fund, should equal the balance of the Money Market plus the total monthly interest paid. Just for clarity, let’s say your money market was valued at $300,000 and the total interest earned for the month was $150. You had three funds invested in the Money Market – general, state, and recreation. To keep it simple, let’s assume you had $100,000 in each fund. The spreadsheet would then calculate that each fund made $50 for the month. I will not get into the accounting aspect of this, as the lesson here is not in the posting of money but purely the investment of money.

So, you have paid the bills and you're ready to allocate funds back into your Money Market account. You take the take the remaining balances of and any additional revenues generated that month for each account and reallocate those total sums back into the Money Market account. That money stays in that account until the next month’s meeting when it is deposited into the respective funds and the process is repeated.

If you were to separate each fund and have a Money Market account for each one individually, that may not maximize your interest because of the required levels that most banks insist on having for interest-bearing accounts. The recreation fund for example being less than $100,000 may not be eligible at all at some banks, but by combining all the funds and tracking them individually each month, you obtain more interest on all the money.

This concept works quite well to get as much interest as possible in today's limited opportunities. Once implemented, you will find it works like clockwork. My bank knows I will be calling for the monthly interest on the Money Market on the first day of the month, and I obtain the checking account balance the day of the meeting. So, in simple terms, Money Market amount, plus interest earned, plus checking account balance, plus any outstanding deposits, minus bills, equals the amount redeposited back into Money Market for another month. It has passed the independent auditors test for 30 plus years. Good record-keeping is all that it takes.

We cannot give legal or accounting advice here, so before you dive in, check with your solicitor and accounting professionals. But being creative can pay dividends (and interest).

Creative municipal investment strategies like this are just one of the many skill sets that we have here at Keystone Municipal Services. Our team of experienced municipal experts is prepared to help keep your Township or Borough on track in all aspects of local government.

So, let’s “fire things thing up” and get as much interest on the municipal money as we can.


About the Author

David L. Anthony is a member of the Keystone Municipal Solutions team of experts. He is a veteran of municipal government, having served more than 32 years in various positions of public service. Contact him at To learn more about David and the Keystone Municipal Solutions team, click here.

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