A small, but growing number of credit unions are using a tool designed to support a steady stream of charitable giving: Charitable Donation Accounts, which have grown four-fold since the end of 2014.
Pentagon FCU in Tysons, Va. ($22.8 billion in assets, 1.6 million members) opened a Charitable Donations Account in 2016, which has been growing at a 9% annual rate so far. Its balance was $109.4 million in September, making it the largest CDA among federally insured credit unions. The CDA allows PenFed to earn a higher return to generate more money for philanthropic giving.
CDAs were born from a rule the NCUA adopted in December 2013 allowing the hybrids that are both investment vehicles and generators of funds for charitable giving. The accounts must contribute at least 51% of their gains to qualified 501(c)(3)s within at least a five-year period.
"This is a phenomenal NCUA authorization," said PenFed President/CEO James R. Schenck. "It provides the structure for the 5,700 credit unions to have a vehicle to do what we're chartered to do: to help the communities we serve."
In the first year, 34 credit unions opened a CDA and had balances of $103.3 million by December 2014, representing 2.6% of their net assets.
By the end of 2016, the 51 participating credit unions had $244.8 million in their CDAs, representing 3.1% of their net worth. By June, participation had jumped to 66 credit unions with a CDA balance of $426.1 million and 3.3% of net worth.
The first group of credit unions to open a Charitable Donation Account included BECU based in Seattle ($17.6 billion in assets, 1.1 million members).
Its balance has grown from $55.6 million at the end of 2014 to $74.7 million as of Sept. 30, making its fund the second largest.
Annual returns vary. The fund lost 0.4% in 2015, but its return so far this year is 8.6%. Since its inception, the average has been 4.6%. BECU withdrew $130,000 in the first year, but has taken out more than $1 million this year, said Tom Berquist, BECU's senior vice president of marketing and cooperative affairs.
Generally, BECU expects to earn more through its CDA than past vehicles. The fund is managed by Members Trust Co., a credit union-owned trust company based in Tampa., Fla, which is paid a fee based on the size of assets under management.
Berquist said BECU's Charitable Donation Account acts as a flywheel to the credit union's charitable giving, spinning off a dependable flow of cash that at least softens the impact on earnings
"More credit unions should probably take advantage of it," he said. "It provides a little bit more of a boost over the long-term to what you're giving. These dollars work a little bit harder for you."
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