You could also consider closing all your regular checking and NOW accounts and replacing them with a controlled disbursement account, especially if you use an automated financial management system. Using a controlled disbursement account may be more expensive than using a regular checking account, because the bank will charge a fee for this service, but savings generated from closing existing checking accounts may offset the cost of using the controlled disbursement account.
How does a controlled disbursement account work? You write checks as you normally would, but they are drawn on the controlled disbursement account. Checks are customarily drawn on a remote branch of the bank that generally has one settlement per business day. Early in the morning, the bank notifies the cash manager of the local government or school district of the total amount of all checks that will clear that day. The cash manager then tranfers into the controlled disbursement account the exact amount needed to cover these checks. There is a zero balance in the account at the day's end.
Using a controlled disbursement account increases the certainty of knowing your daily cash position -- there is no need to forecast what checks will be presented on a given day. The local government or school district does not risk insufficient funds penalties, and can keep their other funds invested longer.
If you want to find out more about controlled disbursement accounts, you should contact your local bank representative (or other banks) to see if they offer this type of account and to find out their process and service costs.
Before entering into a contract for a controlled disbursement account, the governing board should seek legal guidance to determine compliance with applicable federal and State laws. Any action by the bank, in connection with such an account, should be administrative in nature.
Use of a controlled disbursement account may slightly increase the cost of your cash management services, but its use assures that you can control idle cash balances.