CDAs: How to Give Back Smarter

Is your credit union making charitable contributions to your community on a regular basis? If so, you might want to consider a charitable donation account (CDA).

Why? Credit unions regularly face the challenge of both:

• Being actively accountable to their members
• Participating in and giving back to their communities 
• Using the best strategies to protect and grow their bottom line

A CDA might be the solution, as these accounts allow credit unions to give back smarter. Let’s dive in a bit further into charitable donation accounts with Scott B. Hinkle, J.D., CFP, and Principal at Acumen Insurance Solutions.

What is a Charitable Donation Account?

According to Title 12, Section 721.2(b)(2), a charitable donation account (CDA) “is a hybrid charitable and investment vehicle… that you may fund as a means to provide charitable contributions and donations to qualified charities.”

Authorized by the Federal Credit Union Act and many states, CDAs allow credit unions to use “otherwise impermissible investments” in order to offset the cost of making contributions to qualified charities in your community. These include:

• Securities
• Annuities
• Life insurance contracts

Life insurance contracts, in particular, offer a high level of safety, liquidity, and a meaningful rate of return, and are something that every credit union that’s making charitable contributions to their community should consider.

How Does a CDA Work?

Federal guidelines state that a federally-chartered credit union can place up to 5% of net worth into a charitable donation account. This account can be invested in assets that are normally not allowed for your credit union**, which can result in a better return than those generated by traditional credit union assets.

If the account is terminated, your credit union can keep all but the 51% of earnings required to be contributed to the 501(c)3 charities you’ve selected.

**State-chartered credit unions may have similar or different guidelines.

Why Would My Credit Union Use a CDA?

Credit unions are inherently charitable institutions.

Additionally, in the current environment, credit unions need to be as efficient as possible. If your credit union already gives to a charity or charities, a CDA could help your credit union provide these donations more efficiently.

Simply put, CDAs are a win-win for both the charity (or charities) and the credit union.

If your credit union is looking to broaden community impact, a CDA could help you jump-start that effort while positively impacting your bottom line.

For more information on how your credit union can earn safely, visit our blog post “CUOLI: How to Earn More Safely.”