Individual Development Accounts (IDAs)

The Basic Idea:

Create asset-restricted savings programs for low-income families, which include matching government and private funds to further encourage savings.

How it works:

• Families agree to save a small amount each pay period or every month towards purchasing an asset—usually within one to three years.
• Eligible assets include homes, businesses and higher education—sometimes automobiles and retirement.
• The family’s savings are matched with federal, state and/or private funds raised for this purpose—matches range from 1:1 to 3:1 but can be larger. Or there can be no match.
• Usually the amount that will be matched is capped but families can opt to save above the cap amount.
• Families can withdraw their funds in an emergency, but the match is only provided when the family purchases the designated asset.
• Participating families are often required to receive financial education and credit repair while saving.
• To ensure that the savings are used to purchase the asset, the financial institution holding the account cuts the check for the purchase.

Who Does It:

• The lead agency is often a local, regional or statewide nonprofit that partners with other nonprofits for services such as credit counseling, financial education, homeownership and down payment assistance programs—or provide some services itself.
• Lead agencies partner with a bank or credit union to hold the funds.
• A variety of state and federal sources allocate funding for IDA matches or to help run IDA programs.
• Foundations, individual donors and businesses, also can provide match dollars. A few communities have even set up IDA match endowment funds at local community foundations.

Pros

• IDA programs have been proven to be effective at encouraging savings to be used to acquire/build assets.
• Families learn skills they can use forever by linking to financial counseling and credit repair help.
• Some IDAs are exempted from many state and federal asset tests determining eligibility for other benefits programs; enabling families to keep their benefits while accumulating savings.
• IDAs have only been in existence about 15 years, but are now available in more and more areas.
• IDAs build on the rural value of self-help.

Cons

• Families with severe credit issues may not qualify for loans to purchase their assets even with extra help from these programs.
• These programs are difficult and costly to administer, and many lead agencies scramble to pay overhead and staffing costs.
• IDA programs require thousands of dollars in matching funds for each family served, so funding doesn’t go very far and many qualifying families cannot be served.

Simplicity Index

• A High-Hanging Fruit.  These programs are now readily available in many urban areas, but are more limited in rural places, so getting started may require significant partnership building, organizing effort and cost.

Quilt It

• Keep It: Often partnered with EITC programs to encourage saving money coming from tax credit refunds.

Examples and Resources

CFED (Corporation For Economic Development), a national organization, originally championed the IDA, along with IDA inventor Michael Sherraden. It remains a primary resource.

Southern Bancorp Community Partners (formerly Southern Good Faith Fund and Southern Bancorp Capital) has a successful rural IDA program—and another that enables children to develop matched savings accounts.