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NYS Comptroller

THOMAS P. DiNAPOLI

The Academy for New York State's Local Officials

Cash Management: A Tutorial for Local Governments and School Districts

Module 3: Maximizing Interest Earnings

Combining Accounts

To make it easier for local governments to manage cash and provide sound stewardship over finances, the State Legislature amended various sections of the General Municipal Law in 1996, changing the requirements with respect to maintaining separate bank accounts. With certain exceptions (see Local Finance Law ยง165.00), local governments may now combine moneys from various funds in one or more bank accounts as long as appropriate book records are maintained. When combining moneys from various funds, bear in mind that interest earnings need to be allocated properly to each fund.

Accounts that are linked together may maximize the buying power of the local government — that is, may enable it to qualify for a higher earnings credit rate, reduce fees, and maximize interest. This is especially true where officials are able to combine accounts with lots of services with accounts that have high balances.

If each fund has a corresponding checking account, monthly service fees can accumulate quickly. For example, assume each checking account carries a monthly service cost of $10 (or $120 annually). If the bank uses a 5 percent earnings rate to calculate a compensating balance requirement, this means you must maintain an equivalent average monthly balance of approximately $2,400 for each checking account, regardless of the amount and number of monthly transactions. Going one step further, because of the number of checking accounts you maintain, these accounts could be combined into one account. Such a consolidation could then provide an additional $24,000 that could remain invested and, based on a rate of 5 percent, would provide an additional $1,200 in interest income annually.

  Next: Controlled Disbursement Accounts