Throughout history, the FDIC has placed limits on the amount of protection it would provide to each business at each FDIC insured bank. For a business, that limit currently stands at $250,000, per account ownership category, at each insured institution. For businesses with a large sum of cash on hand, these limits have historically been restrictive. However, with the emergence of advanced financial technology, or fintech for short, achieving FDIC / NCUA coverage on all your business cash has never been easier.
Several new methods of achieving government protection for large sums have been made possible in recent years by fintech. Each of those have their own benefits and drawbacks. One of the most popular services is called CDARS.
What is CDARS?
CDARS is an acronym for the Certificate of Deposit Account Registry Service. In short, CDARS allows a business to invest in Certificates of Deposit [CDs] held by many different FDIC insured banking institutions, so it can achieve full FDIC coverage for the total sum. Member banks join the CDARS network and pay service fees on each CD purchased through CDARS.
What are the benefits of CDARS?
Prior to fintech, if a company wanted to secure FDIC coverage for a sum over $250k, they would need to manage relationships with multiple banks, multiple bank statements and multiple reconciliations. In addition, the business owner would need to monitor rates across the U.S. to ensure they are getting a competitive return.
Now, the process of achieving full protection for business cash has been simplified. Fintech allows for businesses to make a single deposit and have those funds automatically distributed to enough financial institutions different banks to achieve full FDIC / NCUA coverage.
What are the drawbacks to CDARS?
Before investing in CDARS, you should be aware of the drawbacks.
CDARS investments have restricted liquidity.
First, the business’s invested funds are all locked in CDs, illiquid, until the CDs mature. If the business needs access to the funds before the respective CD matures, it will pay a penalty.
CDARS investments have limited term options.
Second, with CDARS, businesses are limited to 7 term options for their CDs. For businesses that need liquidity on multiple time horizons, this situation can be prohibitive.
Banks pay fees on CDARS investments
And finally, banks pay a set fee for access to the CDs in CDARS. This can lead to reduced returns on investment when compared to lower cost alternatives. This situation can also erode any return the business might be expecting on these invested funds.
If any of these drawbacks would make investing in CDARS less valuable to your organization, you should consider an alternative that doesn’t have these restrictions.
Are there effective alternatives to CDARS?
Yes. And one particular alternative stands out from the others.
Marketplace Banking™ by the American Deposit Management Company [ADM] provides all the benefits of investing in CDARS without the liquidity and term restrictions. We accomplish this with minimal effort on the part of your business. And, it doesn’t cost the member banks a penny.
Our proprietary fintech allows us to distribute virtually unlimited sums to our network of hundreds of banks and credit unions in an instant. If you need next day liquidity, no problem. A Marketplace Banking™ account provides access to CDs and interest bearing, liquid investments for your business cash. And the best part is you keep your current bank. ADM enhances your current bank, but it does not replace it.
This means you can keep an appropriate amount of liquid cash in your Marketplace Banking™ account, in addition to your CD investments or CD Ladder strategy that mature when you need them – all in the same place. And with Marketplace Banking, we have many more maturity options for your CDs. Our offerings range from 3 months to 5 years with just about everything in between. We call this Smarter Cash®.
Getting started with a Marketplace Banking™ account by ADM couldn’t be easier. Just complete a simple application. After that, you make a single deposit, and a member of our team will get your funds invested as you see fit. Then going forward, you will have 24/7 access to our online portal which allows you to easily monitor and transfer your funds. Finally, reconciliations will be a breeze with your consolidated monthly statement.
Earn more, risk less® with Marketplace Banking™ by ADM.
Before you invest in a CDARS account, give a member of the ADM team a call. As you will learn, our team is our secret sauce, and they are standing by to answer your questions and streamline the onboarding of your company.
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*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.