Why $250 Billion is Sitting in Accounts While Nonprofits Struggle (And How DAF Holders Can Fix It)
Jun 16, 2025
Part 2 in our series on private philanthropy's obligation to support high-impact nonprofits
There's something deeply absurd about the current state of donor-advised funds. Americans are generous - whatever their reasons were for establishing their DAFs, be it the desire to create social good, receive tax-deductions, or build a legacy, the purpose of those DAFs is to disperse funds to nonprofit organizations generating impact that aligns with the funders’ aims.
Today, more than $250 billion sits in DAF accounts, waiting to be deployed to nonprofits, while the organizations those funds are earmarked for - those who are doing the important impact work in areas DAFs are made to support - are cutting programs and laying off staff due to funding shortages. It's like having a fully stocked fire station with trucks that never leave the garage while buildings burn down the street.
DAF grants declined slightly in 2023 to $54.77 billion, marking only the second decline in grantmaking since 2007, despite record-high account balances. Meanwhile, inflation continues to erode nonprofit budgets, government funding remains volatile, and the number of individual donors keeps shrinking.
If you're a DAF holder watching this disconnect between available resources and urgent need, you have both an opportunity and an obligation to act. But first, let's acknowledge why this gap exists — and what you can do about it.
The Uncomfortable Truth About DAF Psychology
DAF holders often get trapped in a peculiar mindset: they treat their charitable account like a retirement fund, optimizing for growth rather than impact. The logic goes something like this: "If I wait another year, this $100,000 could become $110,000, and then I can give more."
This thinking has two fatal flaws. First, it assumes nonprofits can wait for your money to compound when they need operating support today. Second, it ignores the time value of social impact—a dollar deployed to prevent a problem is often worth ten dollars spent addressing it later.
The average DAF at Fidelity Charitable holds nearly $300,000 in assets. These aren't small emergency funds; they're substantial resources that could transform organizations if deployed strategically. Compounding this issue, is the perverse incentive affecting DAF custodians. The banks, wealth managers, and community foundations that house these accounts profit from having large sums invested. The more money that gets distributed to nonprofits, the less they earn.
If you're sitting on a six-figure DAF balance, while seeing how much impact can be done by high-impact nonprofit organizations in need of funding, it’s worth re-examining your motivations for giving in the first place. It’s time to get off the sidelines, and start getting those funds out into the field where they can fuel some real impact.
Five Ways DAF Holders Can Actually Move the Needle
1. Set Distribution Targets (And Stick to Them)
The most effective DAF holders treat their accounts like spending accounts, not investment portfolios. Instead of asking "How can I grow this balance?" ask "How quickly can I deploy this money for maximum impact?"
Practical approach:
Commit to distributing at least 15-20% of your DAF balance annually
Set up recurring monthly grants to organizations you support
Build in automatic distributions that don't require constant decision-making
Why this works: Consistent, predictable funding allows nonprofits to plan strategically rather than constantly scrambling for resources. With donor numbers decreasing but donation amounts staying relatively stable, consistent major donors are more important than ever.
2. Fund Operating Support, Not Just Shiny Projects
Most DAF holders gravitate toward funding specific programs because it feels more tangible — you can point to the scholarship you funded or the clean water project you supported. But nonprofits desperately need operating support to keep their doors open. After all, it requires hiring and retaining top talent, in order to deliver high-quality and lasting impact. We need to start thinking about investment in operating costs as a requirement instead of a liability.
The operational reality: That scholarship program requires staff to manage applications, technology systems to process them, and office space to coordinate it all. Fund the infrastructure, not just the output.
Strategic deployment:
Make 70% of your grants unrestricted operating support
Ask nonprofit leaders what they actually need most (spoiler: it's usually not another restricted program grant)
Fund organizational capacity—technology, staff development, leadership training
DAF advantage: Unlike institutional foundations with rigid program categories, you can make these decisions quickly and adjust based on what you learn.
3. Leverage the Tax Benefits You've Already Received
You already got the tax deduction when you funded your DAF. Now that money belongs to charity — you're just deciding which organizations get it. This perspective shift is crucial for effective DAF deployment.
The strategic mindset: You're not "spending your money"; you're allocating charitable resources that happen to be in an account with your name on it. This mental reframing often helps DAF holders make grants more readily.
Deployment strategies:
Contribute diverse assets beyond cash — stock, real estate, cryptocurrency — to maximize tax efficiency
Use market upswings to fund your DAF, market downturns to distribute grants
Don't let tax optimization become an excuse for endless delay
4. Collaborate with Other DAF Holders
Individual DAF grants, even large ones, often provide welcome but insufficient support. Collaborating with other DAF holders can create meaningful funding packages that actually move organizations forward.
How collaboration works:
Identify other DAF holders who care about similar issues
Coordinate grants to the same high-impact organizations
Share due diligence and split the research work
Create informal giving circles focused on specific causes
Real-world example: Instead of five DAF holders each giving $20,000 to different environmental organizations, coordinate to give $100,000 to one highly effective organization like Clean Air Task Force (working on breakthrough energy technologies) or Climate Emergency Fund (supporting climate activism). Organizations like these can deploy $100,000 far more strategically than five organizations can deploy $20,000 each.
The networking opportunity: Most DAF sponsors like Fidelity Charitable, Schwab Charitable, and community foundations offer donor events and networking opportunities. Use them to find collaborators, not just to feel good about your philanthropy.
5. Focus on Urgency, Not Perfection
Many DAF holders get paralyzed by choice — with thousands of nonprofits to choose from, how do you pick the "right" ones? This analysis paralysis keeps money sitting in accounts while problems worsen.
The 80/20 approach: Spend 20% of your time researching and 80% of your time giving. Perfect information doesn't exist, but urgent needs do.
Practical decision-making:
Start with organizations you already know and trust
Look for nonprofits with strong leadership and clear impact metrics — good intentions are one thing, but it’s crucial to understand and measure impact to maximize the benefits, while minimizing harm.
Focus on your local community where you can see results firsthand
Use platforms like Altruous to accelerate your research and see the complete picture, or seek out a reputable philanthropic advisor to help point you in the right direction.
The urgency test: If you wouldn't be comfortable explaining to a nonprofit leader why their organization should wait another year for your support, make the grant now.
The Policy Reality Check
The IRS has proposed new regulations to ensure more DAF funding goes directly to charities rather than sitting in accounts indefinitely. While these haven't been implemented yet, the writing is on the wall: policymakers are losing patience with DAFs that function more like tax-advantaged investment accounts than charitable giving vehicles.
Smart DAF holders won't wait for regulations to force their hand. They'll demonstrate that DAFs can be effective charitable tools by actually using them for charity.
Your Action Plan (If You're Ready to Stop Warehousing Money)
The path from good intentions to actual impact requires specific actions:
Calculate your distribution rate. How much did you grant last year as a percentage of your total DAF balance? If it's less than 10%, you have work to do.
Identify your grantees. Which 3-5 organizations align most with your values, and would benefit from predictable, multi-year support?
Set up recurring grants. Most DAF sponsors allow automatic monthly or quarterly distributions. Use them.
Research collaboration opportunities. Which other DAF holders in your network care about similar issues?
Schedule annual distribution goals. Put specific dates on your calendar for making grant decisions, and stick to them.
Leverage great technology. Use systems like PhilanthPro to help you calculate your giving amounts, and Altruous to determine which organizations to fund.
The Bottom Line
DAFs were created to make charitable giving easier and more tax-efficient, not to create a new class of charitable investment accounts. If your DAF balance keeps growing faster than your grant distributions, you're doing it wrong.
The nonprofits addressing climate change, racial justice, global health, and other critical challenges don't need your money to be perfectly optimized—they need it to be consistently available. The difference between a 7% return and a 9% return on your DAF balance is meaningless if organizations can't afford to keep their programs running.
Stop treating your DAF like a hedge fund and start treating it like what it actually is: charitable money that belongs to charity.
The problems you care about are getting worse while you optimize your giving. The organizations you claim to support are struggling while you perfect your strategy. By minimizing deployment while growing your DAF balance, you’re missing a huge opportunity to help drive the changes you want to see in the world, and the people and organizations doing the hard work of social change are suffering as a result.
Extraordinary times demand extraordinary action. It’s time to start using DAFs as they were intended to operate, and get that funding out into the field where it can start doing some real good.
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Altruous helps DAF holders identify high-impact nonprofits and streamline their grantmaking process. Our platform provides the research and tools you need to deploy charitable resources effectively, without the endless analysis that keeps money sitting in accounts. Because urgent problems require urgent solutions.
