The Comprehensive Guide to Nonprofit Bank Accounts in 2024

Even under ordinary circumstances, dealing with banks can be intimidating. This feeling is only exacerbated when one is dealing with the special tax status of a nonprofit and handling funds that are not their own.

But things don’t have to be this stressful. This comprehensive guide will not only provide you with the steps to open a bank account for your nonprofit, but it will also give you a better understanding of the broader difference between a nonprofit bank account and a regular bank account so you can manage your organization’s finances without fear.

Just like individuals and businesses, a nonprofit needs a bank account in order to operate within our modern society.

These accounts are used for a myriad of different things, including receiving donations and grants, storing funds raised, paying for operational and administrative expenses, and transferring money related to different initiatives.

A nonprofit bank account is a bank account through which the nonprofit conducts all of its transactions and in which it keeps all of its money at any given time.

Just like individuals, nonprofits can open different types of bank accounts by choosing between a transactional account, such as a checking account that handles everyday transactions, or a savings account, where you can compile interest when storing larger sums of money. Many nonprofits will often opt to have a combination of both in order to have more flexibility to meet their unique needs.

Now that you know a bit more about why you need a nonprofit bank account, it is time to explore how you go about opening them.

 Here are the seven steps you need to take to open a nonprofit bank account.

1. Incorporate Your Nonprofit

While you may have done this already, it is important to ensure your nonprofit is properly incorporated before you try to open a nonprofit bank account.

Typically, in order to complete this process you need:

• Articles of incorporation
• A set of bylaws with the structure of your organization
• Information on your mission and your board officers
• State necessary permits

As you may imagine, the required paperwork will vary depending on where you are registering your nonprofit. As such, while we provided you with some of the basic information you’ll need, make sure to look up your state’s requirements beforehand so you don’t miss anything.

2. Apply for Your Employer Identification Number

Before you can apply for your tax-exempt status, you must first apply for your Employer Identification Number (EIN). Much like a Social Security Number, the EIN is a unique number that allows the IRS to identify different organizations.

Know that you must apply for an EIN even if your nonprofit has no other employees except yourself.

It is also important to note that your EIN is different from your tax-exempt number, and it is one of the crucial pieces of information that most banks will require from you when opening your bank account.

If you have not done so already, you can apply for your EIN on the IRS website.

3. Apply for Nonprofit Status With the IRS

Either after or alongside the process of incorporating your organization, you can also apply for nonprofit status with the IRS.

While you could technically open a nonprofit bank account before receiving your tax-exempt status, it is highly recommended for you to wait until you’ve received confirmation from the IRS that your nonprofit has the tax-exempt status.

This is to avoid the risk of having to pay any taxes on the money you deposit when first opening your account in case something goes wrong with your application or the process is delayed due to unforeseen circumstances.

4. Research Bank Options

Finally, we’re at the most difficult and yet most important part of this entire process: the research.

As mentioned before, almost any financial institution can be used to open a nonprofit bank account. However, what works well for your nonprofit will be very different from what works for a different organization. This is why thorough research is so important.

When doing your research, take the following factors into consideration:

• Location
• Values
• Experience
• Services
• Fees

Do you prefer to work with a smaller, local bank that is familiar with your community, or with a larger one that has different locations spread throughout the country? How close are you to the nearest branch? Does your nonprofit operate mostly in one area, or do you have initiatives nation-wide?

Take into consideration the fact you might often need to travel to your bank, sometimes unexpectedly, to handle some of the larger transactions or to resolve unforeseen issues. This would be difficult to do if the nearest branch is an hour away from your headquarters.

Also be sure that whichever bank you choose aligns with the values of your nonprofit. For example, if your nonprofit is fighting to keep plastic away from our seas, consider looking for banks that have supported similar initiatives in the past, or that are actively working toward making their operations more environmentally-friendly.

Look beyond public statements and try to see what concrete actions they have taken to address the causes they claim to support.

If at all possible, try to see if the banks you’re researching have experience dealing with nonprofits. Ask yourself these questions:

• Are they familiar with the particular needs you’ll have?
• Do they know the state and federal regulations you must follow?
• How many other nonprofits do they currently work with?

A bank that has experience dealing with nonprofits will not only be able to anticipate your needs, but they might also become a trusted partner in your mission.

When it comes to looking at their services, think about how many of your staff members will have access to your nonprofit’s bank account. How comfortable are you with online banking? Do you need 24-hour customer service, or would you be fine with something that operates only during business hours? Can you take out a loan from them if needed?

Be sure to also look at any possible fees the bank might charge you. While some financial institutions will waive monthly operational charges for nonprofits, others will not. Most banks will also charge you a fee if you go under the minimum balance requirement.

See if the banks are willing to negotiate said fees, and compare them to see which one is best suited for you.

5. Gather the Necessary Paperwork

Once you have chosen which financial institution is best suited for your nonprofit’s needs, it’s time to gather the necessary paperwork.

Typically, to apply for a bank account, the nonprofit will need a copy of:

• Articles of incorporation
• EIN
• Bylaws

While we have already discussed your articles of incorporation and your EIN, we have only briefly mentioned bylaws.

According to the IRS, bylaws are the internal rules that govern a nonprofit organization. Requirements and regulations for bylaws will vary depending on the state, so be sure to check if your nonprofit is in compliance with your state’s laws before opening a bank account.

The good news is that if you’ve already incorporated your nonprofit, received your tax-exempt status, and your EIN, then you already have your bylaws done, and you just need to have a copy on hand for when you go to your chosen bank.

These will help the bank not just understand the purpose of your nonprofit, but also its structure and who the board officers are.

However, don’t make the mistake of thinking these are the only documents you will need for this process. Just like every state has their own requirements when it comes to creating and operating a nonprofit, banks will also have their own unique set of requirements for opening an account. This should have come up during your research, but if it didn’t, don’t hesitate to contact the bank and double-check what information they need from you.

6. Gather Your Board Officer Information

Along with the structure of your nonprofit, banks will also want to know who works for your organization and who they are most likely to deal with. For this reason, most banks are likely to ask you for a list of your board members, along with a copy of their government issued IDs and other personal information.

Typically, they’ll be expecting information on the following officers:

• President
• Vice President
• CEO
• Treasurer
• Secretary
• Executive Director

Besides the list of these officers, they might also require you to provide the following items for each of them:

• A Photo ID
• A Government-Issued ID
• Social Security Number

Remember, though, that requirements may vary from one bank to another, and what one bank considers acceptable paperwork might not be the same for another bank. Again, we urge you to be thorough with your research beforehand and to ask your chosen bank if you’re not sure what information they consider valid.

7. Make Sure You Have the Initial Deposit

Finally, before you open your bank account, you have to make sure you have money to deposit in your account.

As you may already know from your own personal banking experiences, many banks will require you to deposit a certain amount of money in your new account upon opening it. This is true for opening bank accounts for nonprofits as well, and it is something you must have ready when starting out.

Once more we must emphasize the importance of checking with your chosen bank to see what the minimum value for this initial deposit is, as it may differ on a case-by-case basis. While this is something else that should have come up during your research, if it did not, we encourage you to contact the bank ahead of time so you can avoid any surprises.

Opening a bank account is not the end when it comes to handling your nonprofit’s finances. Here are some rules to keep in mind regarding your banking situation.

1. Remember to Keep a Minimum Balance

Most banks and other financial institutions have a minimum balance requirement, and dipping below that number, however briefly, can lead to you being charged a fee.

The best way to ensure this does not happen is to be on top of your budget. Know all of your bank fees, know all of your expenses, and know how much money your nonprofit is sure to receive each month. Be on top of your bookkeeping and plan your operations around those numbers so that you never risk going below that minimum amount.

2. Keep Track of Cash Flow

While this step may seem obvious, especially to those who are used to budgeting, it is important to reiterate it nonetheless.

As a nonprofit, the majority of your deposits will come from donations and grants. Some of these may be small in amount, while others might be big.

You might go through periods where you are receiving tons of donations in a short time span, or go through long stretches of time where very few donations are being made. You’ll have expenses year round to cover, and you’ll have more so during the time of your most important campaigns.

Keeping track of your cash flow will help you avoid trouble with the IRS. Knowing where the money is coming from and where it is going is a simple yet crucial practice when it comes to managing a nonprofit bank account. 

3. File Annual Returns With the IRS

This rule goes hand-in-hand with the previous one, for even though nonprofits are tax exempt, you must still report to the IRS your income and expenses.

Keeping track of your cash flow and accurately maintaining your bookkeeping is the best way to avoid any hassles or troubles when it comes time to file your annual returns with the IRS.

If it is in your budget to do so, consider perhaps hiring a licensed accountant who specializes in nonprofit finances to help you with this.

4. Know the Origin of Your Donations

Did you know that some banks have strict restrictions on who you can receive money from?

While there are many advantages to our online world and how it manages to connect us across international lines, this may cause some logistic troubles for your nonprofit as many banks will not accept money originating from certain countries, or may have difficulty processing or even refuse to accept international deposits.

Smaller, local nonprofits who operate only within their communities or mostly within the United States might not have trouble with this. However, it is still good practice to be on top of the origins of your donations, especially if you are planning an online fundraising event that might garner international supporters.

Talk to your bank about said restrictions so you can anticipate any problems and have an action plan in place.

5. Keep Track of Contractors and Services

Though we would love to do it all in-house, the truth is that, at some point, you’ll be hiring contractors or paying for services. Be it whether you are hiring a grant writing consultant to help you apply for grants, or whether you need to rent out a venue for an event, you will, at some point, have to seek the paid help or service from someone outside your nonprofit.

If you are doing this, make sure, once more, to keep track of all your expenses and to fill out the 1099 form correctly.

6. Make Sure Your Nonprofit Status is Applicable in All Places of Operation

As we referenced before in this article, every state has different rules and regulations for how nonprofits can and cannot operate. This is especially true when it comes to matters concerning donations.

While people from other states can donate out of their own free will to your nonprofit at any point and from anywhere, if you are soliciting money from individuals in a certain state or hosting fundraising events there, you must be sure you are legally allowed to do this. It is a small but significant difference that you must know well.

This might mean you’ll need to apply for a tax-exempt status for every state in which you will be soliciting donations. Remember that these applications need to be renewed on occasion, so always be sure to keep an eye on that.

7. Know How You Will Be Receiving Donations

There are many ways through which nonprofits receive money. While cash and checks can be easy to transfer to your nonprofit bank account, donations given through credit or debit cards are not as simple.

This is where the “merchant service” comes into play. Merchant service allows you to charge cards by taking in the card’s information. Many banks will offer this service through an extra fee, but there are those who do not have the ability to do so. If that is your case, then you will be required to get this through an external provider.

Know how you will be receiving donations and make sure you are equipped to make up for any short-comings from your chosen bank.

8. Be Careful With Investments

Investing can be tricky even at the simplest of scenarios. Depending on how you choose to invest your money, it might lead you to lose it due to factors outside of your control. For this reason, general consensus says that you should not invest your nonprofit's money.

Remember that the money in the nonprofit does not belong to you. As such, it is most often advisable for smaller or new nonprofits to avoid the unnecessary risk.

If possible, talk to a lawyer who specializes in nonprofits for their opinion on your organization’s specific circumstances and follow their legal advice.

9. Separate Money for Operational Expenses from Those Used Toward Your Campaigns

While this is not a requirement, many nonprofits prefer to keep the money they use for their operational expenses and the ones used to directly contribute to their mission separately.

One of the reasons for this is because there are many donors who prefer to know that their contributions are going directly to the cause they care about.

Furthermore, you might find that keeping the money for operational expenses and the money for your cause in separate accounts can make other financial tasks easier to handle. For example, budgeting for your everyday administrative needs might be easier when that money is not mixed in with the funds you must use for your mission.

One of the easiest mistakes to make when it comes to managing your nonprofit bank account is not talking to your potential banks prior to opening your account. You can discover a lot and have many of your questions regarding your specific circumstances answered through a simple conversation.

Don’t be afraid to contact potential banks. Just as they will have questions for you, you can also ask them questions. Ask about their code of ethics, their social responsibility statement, or whether or not they offer special services for nonprofits.

As we have stressed a few times already, different banks will have different requirements for opening and properly keeping a nonprofit bank account. Lack of proper research is one of the biggest mistakes you can make when going through this process.

You can never be too prepared, and so do not assume you already know all the answers. Double-check that you have the right paperwork, ask the bank questions on topics you were not able to get as much information on, and ask for explicit and detailed clarifications on their policies, services, and fees.

And don’t think this should be limited to before you open your bank account. If something comes up after you’ve become this financial institution’s client, ask them about it. You want your chosen bank to be a partner in your mission, one that will serve your nonprofit well and who will be there for you when you need it. Do not let fear or miscommunication get in the way of this relationship.

Dealing with banks can be intimidating, especially when you are dealing with money that is not your own. With so many rules, regulations, and variations, we may often fear doing the wrong thing even when we have the best of intentions.

Hopefully, this comprehensive guide to nonprofit bank accounts helped shed some light on this seemingly mysterious bureaucratic process so that you are better equipped to not only choose the right bank for your organization, but manage your nonprofit without fear.