Do a little homework before donating on a crowdfunding website.
That’s the message from the Better Business Bureau of Utah, a nonprofit organization that promotes business ethics. The nonprofit this week released a warning encouraging consumers to ask questions and know exactly what they’re supporting before contributing to a crowdfunding pitch.
Things to consider before donating on a crowdfunding site:
Read about the site’s policies, terms and conditions and its fee structure.
Understand you may not get a tax deduction on your contribution.
Make sure the website securely encrypts all transactions using Secure Socket Layer (SSL) technology. Look for https at the beginning of the website address.
Source » BBB of Utah
BBB of Utah president and chief executive Jane Driggs said her office received about a dozen calls and emails after last week’s Boston Marathon bombings with questions about donating through crowdfunding websites. GoFundMe reported raising nearly $1.3 million through its "Believe in Boston" campaigns; GiveForward noted 18 families have raised more than $1 million through its "Boston Marathon Support Page."
"It’s kind of a buzzword right now, but I don’t think people really understand what crowdfunding is," she said.
Basically, crowdfunding refers to online fundraising. Anyone can pitch an idea and ask for donations, and the range of causes runs the gamut, from disaster relief to students soliciting funds for a school trip to business start-up capital.
Many causes raise thousands in a matter of hours. But Driggs warns that most crowdfunding sites take a fee from each donation. GoFundMe.com, for example, deducts a 5 percent fee from each donation plus a 2.9 percent processing fee through PayPal or WePay. If you reach your goal on RocketHub, you’ll pay a 4 percent commission plus a 4 percent credit card handling fee. Kickstarter charges a 5 percent fee for the total plus a 3 to 5 percent processing fee; indiegogo charges 4 percent of the overall total raised along with a 3.5 percent credit card fee.
"Our concern is that consumers don’t know that there may be fees involved," she said. "The person may not understand that all the money they’re giving is not going to go to that person or organization."
She added that many crowdfunding causes are not tax deductible. If that deduction is important to you, she advises giving to an established charity.
Either way, Driggs counsels people to take five minutes to check the fine print on crowdfunding sites, including terms, conditions and policies, particularly about privacy.
"If you take that time, then you’ll know you’re donating to someone or some organization that will actually use your money wisely."
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