While there are many options for managing excess cash or a large cash balance, including higher-risk investments with a potentially higher return like the stock market, many organizations or individuals require a more conservative approach that includes securing all funds using FDIC insurance.
In fact, it is common for the following types of depositors to carry large cash balances and prefer or require the safety of an FDIC-insured account:
- Nonprofit organizations;
- Municipalities;
- Endowments and foundations;
- A business in a high-risk industry to even out the risk profile;
- Individuals nearing retirement or in retirement; and
- Anyone looking for the safety of all funds qualifying for FDIC insurance.
In addition, events over the past year have only reinforced the importance of keeping deposits safe in an FDIC-insured institution. But what happens when your cash balance exceeds the FDIC limit of up to $250,000 at any one bank? The old, outdated response to that question would have involved splitting your deposits among multiple financial institutions and manually tracking multiple accounts, monitoring multiple bank statements, and managing more complicated accounting.
Luckily, there is a simpler and more elegant way to insure large cash balances while maintaining a single bank relationship using either CDARS or ICS through IntraFi.
What are CDARS and ICS?
Lake Ridge Bank is a member of the IntraFi network, which has vetted banks from across the country to cooperate on behalf of customers as part of the CDARS and ICS programs. (Editor’s note: IntraFi is a partner to nearly 3,000 of the nation’s banks, according to intrafi.com).
Banks that are part of the IntraFi network can essentially split up your total deposit into multiple accounts under the FDIC limits and house each account at a different member institution to make the entire cash amount eligible for FDIC coverage. We can create as many accounts as needed, and it all happens behind the scenes, so you can simply bank as usual.
For each of these accounts, you can choose either the CDARS or ICS program — or a combination of each:
- CDARS stands for Certificate of Deposit Account Registry Service. CDARS places your money into an interest-earning CD.
- ICS stands for IntraFi Cash Service. ICS places your money into a demand deposit account or money market deposit account.
Both types of accounts enable the depositor to do the following:
- Work with one bank for a simpler and safer way to keep track of and manage funds for your total account balance;
- Earn interest at a rate set by the member institution of your choice;
- Take advantage of a bank’s best rates and lowest fees reserved for very large depositors;
- Save time (and sanity) by receiving ONE statement that details all your deposits;
- Access funds when needed by getting access to money in an ICS account at any time or by choosing from multiple-term options for funds placed in a CD;
- Enjoy the safety of FDIC insurance by making the entire balance eligible for FDIC coverage using a single banking relationship at a local financial institution; and
- Meet the financial requirements set forth by your board of directors or exceed the expectations of voters and constituents with conservative investments that are guaranteed by the FDIC.
Reporting for duty
Taking advantage of a CDARS or ICS service can be especially helpful for organizations that have specific reporting requirements. For example:
- An IntraFi network institution can provide a list of all banks utilized in your deposits for auditing purposes.
- These institutions can include or exclude certain banks based on your preferences.
- They can help monitor account totals as interest is earned and your fund grows to make sure you remain under the FDIC limits.
Choosing to participate in the CDARS or ICS programs through IntraFi comes down to understanding all of the options that meet your financial needs. In reality, there is never just one choice. There are many factors and variables that should be discussed and considered.
The key is to rely on experts who are knowledgeable about those options, who can offer insight, and who will answer all your questions. I have conversations like this every single day to help clients determine their needs and explore their risk tolerance in relation to their risk profile. Bankers, including community bankers, have access to programs for clients on both ends of the risk spectrum, looking at where you are right now and where you want to be next year and beyond.
Sam Huntington is the senior vice president–treasury management at Lake Ridge Bank.
