Individual Development Accounts – Part 1

Individual Development Accounts (IDAs) are a great way to build wealth in your community and improve your service, investment, and lending performance on your next CRA Exam. IDAs are matched savings accounts created to help low and moderate community members save for postsecondary education or training, first time homeownership, or business capitalization. A good IDA program gives participants an incentive to save and the financial education they need to be successful in meeting their goals. 

Deposits made into an IDA by a qualified participant are matched based on pre-determined program criteria.  An IDA Program can be structured to provide a match when a specific dollar goal is achieved or at a particular point in time.  The match can vary depending on the availability and the source of funds, and can be as little as $0.50 for every dollar saved, $3 for every dollar saved, or more. 

Often an IDA program is structured with minimum deposit requirements, as well as restrictions on withdrawals, and require completion of a financial literacy program. The program can be flexible enough to meet the needs of your community.  Is affordable housing a challenge?  IDAs for homeownership can help families save for a down payment and learn about the homebuying processes in a financial literacy class.  Are young people leaving your communities to find better jobs elsewhere?  Create a program to help small business owners start or grow their businesses.  Layer your IDA program with your financial management education and small business loans to give small business owners the greatest chance for success.  

Like most really good community programs, your financial institution doesn’t have to do this on its own!  Partnerships with nonprofit organizations who can identify qualified candidates and manage their participation can be the key to a successful program.  Look for CDFIs who can provide additional funds in the form of microfunds that can make a big difference, or affordable housing organizations who have support already in place.  

You may be wondering where the funds would come from.  There are many government and non-government sources available.  The  Federal Home Loan Bank programs might be a good fit under their affordable housing programs. Some CRA Hub members have had great success with local philanthropic partners. And of course, this is a great community development investment opportunity for your financial institution too!  

While IDA programs may be complex, the benefits to the community and your financial institution are many.  Next week I’ll share how you can put together an IDA program in your community!  

Yours in community development,

Linda 

P.S. Did you see I have a free course for bankers who are new to CRA? Click the button below or share this article with a colleague that might have inherited their bank’s CRA program and are not sure where to start!