Local governments should earn interest on all funds—budgeted, bond, checking, and savings—not just surplus cash. Sheldon, Iowa, grew interest earnings from $36,500 to $700,000 annually. Perhaps you can do the same or even better with these ten steps.
 

1. Pull a list of your accounts with current balances and rates. In 2018, the city of Sheldon was earning 0% on checking and 0.05% on savings (that’s 1/20^th of one percent) — the city’s interest rate since at least 1970. This was the minimum in Iowa Code 12C. This persisted even during the 1980s farm crisis, when Iowa farmers, including my father, were paying 18% on loans.

2. In Sheldon, I first sought the mayor and council’s blessing since we were earning so little, despite a long bank relationship. I then negotiated 2.25% (early 2019) and issued a request for proposal (RFP), keeping IPAIT (Iowa Public Agency Investment Trust) as an option. Most states have a local government investment pool similar to IPAIT. Four local banks participated, and the incumbent bank was selected. Our five-year rate for all accounts, except bonds, was 2.25%. Our 2024 RFP resulted in a switch of banks for a new 5-year term, and we’re now earning 5.06% on all funds for the first year, except bonds. In October 2025, we’ll earn the federal funds rate minus 0.45% for four years (currently 3.88%).

3. Regarding bonds, we are earning the interest rate on bonds up to the bond’s rate or the Fed’s rate, whichever is less (i.e., a recent $3.5 million public works note earns 3.91% to avoid arbitrage). This means free interest on debt if you follow IRS spend-down rules.

4. Switching banks was logistically easy but politically tricky. We’re on track to earn nearly $700,000 this year alone. Using the 2018 rates (0% on checking and 0.05% on savings), we’d be earning only $36,500. If you’re earning low interest, approach this gently. Engage banks tactfully—relationships matter. If earning low interest, negotiate carefully; banks support communities, but local governments shouldn’t yield low returns.

5. You should be able to immediately increase your rates while you decide if you need to seek competitive quotes (which can be a lot of work, but worth it). Face-to-face talks with the bank, with your finance director in the room, work best. Several of my colleagues in Iowa immediately increased rates with a phone call or visit. Last year a colleague talked with his city’s main bank and increased from 0.3% to 2.25% in less than 5 minutes, which was $189,000 in one year! Today his community is earning more than 4%. Another fellow city manager increased his community’s earnings by $400,000, and at the same time he discovered his community was paying $40,000 in extra credit card processing fees. Another colleague moved millions to IPAIT while they negotiated, and it worked—they are now earning more than 4%. 
    

6. If rates are low, use your state’s investment pool (like IPAIT) for safe, competitive returns, leveraging local preference to push banks for better rates.
    

7. RFPs work if you have competitive banks, like Sheldon’s four. Periodic reviews are easier. Ensure council and your finance team support the issuance of an RFP to proactively counter objections like ‘it’s too hard to switch’ after the proposals have been received. 
    

8. Consolidate funds in one bank for better rates; splitting up the funds weakens leverage unless you get the federal funds rates or better. FDIC protects public funds. Update deposit resolutions with high ceilings and consider a deposit agreement, which gives you flexibility to move funds as needed. 

9. Ask your bank about efficiency tools (i.e., check readers). They’ll appreciate the collaboration.
    
10. Consult your legal counsel or auditor on interest allocation—much can aid general funds, but there may be restrictions. Sheldon also uses earnings in utility rate studies, benefiting ratepayers, but be cautious with overpromising a positive rate impact unless your interest rates are fixed.

Check your rates today—you might be surprised. Feel free to contact me with questions at sam@cityofsheldon.com or on LinkedIn.

Sam Kooiker, MPA, ICMA-CM, city manager Sheldon, Iowa since 2018. He was recently reappointed to the Iowa Civil Rights Commission.