How to Set Up a Fundraising Bank Account

By Jamie Cattanach · January 23, 2024 · 7 minute read

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How to Set Up a Fundraising Bank Account

Fundraiser bank accounts offer a way to help take care of those in need, and they are typically easy to establish. You may have heard about these accounts on your local news. They are used in such situations as people donating to help a neighbor rebuild a flooded house or pay medical bills when facing a tough diagnosis.

If you are planning to raise money on someone else’s (or a cause’s) behalf, opening a fundraising bank account could be a good option. But how you do so will depend on what the account is for. Here’s a closer look at what a fundraising bank account is and how it operates.

What Is a Fundraising Bank Account?

A fundraiser bank account is one set up specifically to hold donations. For most of us, that means donations to a small cause, be it ourselves, another individual, or a small group of people. A fundraising bank account sets aside the money specifically for the beneficiary (or beneficiaries), though it may not be opened by the individual who will benefit. Some points to consider:

•   Keep in mind that opening a bank account for fundraising is different from donating to a charity. These are bank accounts people set up to hold donations to an individual or family as opposed to starting a full-on charity of their own.

•   A fundraising bank account is not the only way to capture donations. Most major crowdfunding platforms make it easy to accept donations through the platform itself, or you may also be able to take donations via peer-to-peer transfer services. The money could then be transferred directly to an individual’s personal checking or savings account.

•   Unless you’re offering something in return for the money or the total donations, it’s not considered taxable income, though the crowdfunding platform may report the transactions to the IRS.

That said, opening a fundraising bank account can still be the best option for some situations. It can provide more formal protections for beneficiaries and assure the donated monies are separate from other funds.

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What Is Needed to Set Up a Fundraising Account?

What you need to set up a fundraising bank account will vary depending on the bank you choose and even the local laws in your area. A good first step: Explain the purpose of your account to the bank when you open it. This way, they will have a full picture of what your goal is and be able to guide you.

Your Identification Information

Just like when you open a new bank account, you’ll need identifying information such as a Social Security number, name, and address — but whose identifying information you need will vary. If the fundraising account is for donations to you as an individual, your own information will be needed.

The Beneficiaries’ Identification Information

But if you’re opening an account for a someone else to benefit from, it may make more sense to open the account with their credentials. In fact, if you can, bring them to the bank with you and have them open the account in their own name. A bank may or may not allow you to open an account for another person if they’re not present or haven’t provided signed and notarized forms.

If the beneficiary doesn’t have a Social Security number or you’re opening the account for multiple beneficiaries, you may need to obtain an Employer Identification Number, or EIN, from the IRS for the account. (This is simply a way for the IRS, or Internal Revenue Service, to keep tabs on the money for tax-reporting purposes — it doesn’t, in this case, have anything to do with being someone’s employer.)

What to Do With the Money While It Is Being Raised

When you are gathering funds to support a charity or help a person in need, it’s vital to keep it safe. A smart way to do that: Make sure that money gets into the bank account ASAP. Depositing it directly will protect it from possible loss. As other deposits come in, the balance will grow until the happy day you are able to distribute it to the individual or charity that will benefit from your kindness.

Things to Consider With a Fundraising Bank Account

There are some complications that can arise when opening a bank account for fundraising. Some examples:

Fundraising Accounts for Deceased Beneficiaries

In some cases, you may be raising money to pay for a deceased person’s funeral costs or to provide living expenses for loved ones left behind. Of course, if someone has passed away, you can’t use their Social Security number to open an account — so you’ll need to obtain an EIN, as mentioned above, and again, let the bank know explicitly the purpose of the account.

Fundraising Accounts for Minor Beneficiaries

Perhaps you want to help collect money for a child who needs cash for medical or educational expenses. Be forewarned that raising money for minors can come with a variety of complications — including the problem of ensuring the minor uses the money for what it’s being set aside for.

•   Establishing the account by or for the child’s legal guardian is a good way of safeguarding the funds and making sure they’re being used for the intended purpose.

•   If that option is unavailable, you might consider setting up a trust fund — which involves putting the legal responsibility for the money into a third party’s hands, with the added option of specifying certain ways the money can be used. An attorney can guide you through the process of setting up a trust.

Tax Consequences

As mentioned above, gift funds received in a fundraising bank account may not be taxable as income — although there are exceptions, and you should always consult a tax professional to be sure you understand the tax liabilities of your planned actions. For example, if the account the donations are being held in earns interest, taxes may be assessed on those earnings.

In addition, keep in mind that these kinds of donations are not considered charitable donations, and so will not be tax deductible for the donor.

Can the Bank Be Held Liable if Funds Are Misused?

Unfortunately, scammers do exist — and it’s possible that some people who set up fundraising bank accounts may end up using the monies for a purpose other than what was promised to the donors. If you’re setting up an account in good faith for someone else’s use, it’s worth checking with the bank about who’d be liable if the beneficiary misused the funds.

It’s not unheard of for banks to request that they be indemnified if this should happen and the money isn’t used according to the fund’s original intention.

Are There Safeguards in Case of Fraud?

It’s upsetting to think about, but yes, fraud does happen. People have been known to take advantage of the compassion of do-gooders and use the money raised to pay for things other than to fund’s intention.

•   Setting up a formal trust is one way to ensure the funds can only be used within the proper parameters.

•   You can also check with the bank to learn if there are any other safeguards in place in case of bank fraud.

The Takeaway

Opening a fundraising bank account is one way to set aside money being gathered for an individual or small group. The funds will be protected and can accumulate to help the beneficiary. When acting on good intentions, though, it’s important for the account’s creator to understand how these accounts function, what’s required to open one, and that they don’t afford any tax deductions for donors. With these steps taken, you can be well on your way to helping those in need or a cause that moves you.

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How do I set up a charity account?

To set up a fundraising bank account, you’ll need to explain to the bank the purpose of your account and ensure you have all the information they need, likely including the beneficiary’s Social Security number.

Do I need a tax ID for a fundraiser?

Depending on the type of account you set up and whether or not the beneficiary’s Social Security number can be used, you may need to get a tax ID number (such as an Employer Identification Number, or EIN) in order to open the account.

How do you account for donations?

All donations should be tracked for tax reporting purposes — and keeping them in a separate account makes it easy to see which funds are personal and which are gifts.

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