In the Spring of 2023, the Federal Deposit Insurance Corporation (FDIC) acted on its first recovery measures due to bank failures since 2020. These recent events have led organizations to reevaluate the protection of their account balances and funds. In the event that some funds are not covered by the FDIC, organizations can assess the available options for effective cash management solutions and protect their funds.
Option 1: Multiple Bank Accounts for FDIC Protection
Although opening multiple accounts at FDIC-insured banks is a common solution, it can become administratively burdensome for organizations. The extra administrative work, monitoring, and reconciling of multiple accounts may not scale well for many organizations. Luckily, there are other solutions that may fill the needs of various organizations.
Option 2: Leveraging CDARS Accounts for Enhanced Protection
Certificate of Deposit Account Registry Service (CDARs) accounts deposit and spread the money into a network of various FDIC-insured banks. This system ensures that one depositor’s amount in each individual bank does not exceed the $250,000 FDIC limit. These accounts offer convenience by limiting the administrative burden on the CDARS account holder as they have one account with one institution; then, that institution takes care of moving deposits to stay in FDIC compliance.
Option 3: Advantages of Cash Management Accounts
A cash management account, sometimes referred to as a sweep account or ICS account, is a similar instrument to a CDARS account. These accounts allow for quicker fund withdrawals since the funds are spread into time deposits. Depending on the needs of the business, it may be more impactful to have quick access to the funds and receive a lower interest rate or vice-versa.
Option 4: Exploring NCUA as an Alternative to FDIC
Credit unions offer similar coverage as the FDIC through the National Credit Union Administration (NCUA). Many institutions have partnerships with other insured lending agencies and offer similar products to a CDARS or ICS account.
In summary, when looking for solutions to an organization’s cash management situations, organizations have many options to explore. Considering the recent bank failures, safeguarding your organization’s funds is crucial. Take action by exploring the options above and by contacting your HBE trusted advisor to learn more about effective cash management solutions for your organization.