In the midst of the COVID-19 pandemic, many businesses are becoming insolvent or at least, experiencing heavy financial stress. Just this week, rental car giant, Hertz, filed for bankruptcy citing cash flow issues related to the pandemic. This latest failure of a corporate giant comes in the wake of several major retail bankruptcies.
This disaster is forcing corporate leaders to reevaluate their emergency plans and their required levels of cash reserves. After all, individuals and families are coached to keep a 3 or 6-month emergency fund to cover their expenses in case of an emergency. Should businesses take that advice as well?
Large sums of cash create risk.
One major problem with keeping a large sum of liquid cash is securing protection for that cash. The FDIC guarantees up to $250k in protection for individuals and businesses in each member bank, per account owner. This is enough to protect many small and medium-sized businesses, but for others it isn’t even close.
For those organizations that need to maintain more than $250k in liquid cash, there are other options. Advanced financial technology, or fintech for short, has disrupted traditional banking in a way that makes securing FDIC coverage for millions of dollars of cash more accessible. One of those methods is the Insured Cash Sweep [ICS].
What is ICS?
The Insured Cash Sweep program allows banks to pay a fee to access a network of other banks in the FDIC network. These banks can be utilized in distributing a large sum of cash into smaller pieces to achieve FDIC coverage for the entire amount.
The ICS network allows businesses easy access to coverage in excess of the standard $250k limit for FDIC insurance, but there are important factors you should consider before choosing a service like ICS.
Limitations of ICS
First and most importantly, banks that participate in ICS must pay a fee. This fee is generally passed on to the customer by reducing the rate of return.
In addition, ICS can only provide FDIC protection. It does not allow for custom deposit protection that can increase yield without sacrificing safety.
Finally, there is a limit to the amount of deposits that can be protected by ICS. This limit is around $150 million. Other alternatives to ICS have achieved near unlimited capacity to protect business cash.
An Alternative to ICS
Our company, the American Deposit Management Co. [ADM], has developed proprietary fintech and a network of community banks that allows us to achieve virtually unlimited protection for your cash without the limitations of ICS. We call this Marketplace Banking™.
First, our main advantage over ICS is that banks do not pay us fees, and we pass that savings along to our clients. A Marketplace Banking™ account will generally yield a higher rate of return than ICS due to this advantage.
Next, with a Marketplace Banking™ account, your business will not be limited to FDIC insurance. If an alternative form of deposit protection is available that can increase the rate of return on your deposits without sacrificing safety, your business will have access to that higher yield.
Finally, the amount of protection your business can get with a Marketplace Banking™ account is virtually unlimited. If your business needs to protect more than the ICS limit, no problem.
Earn More, Risk Less® and Have Fun
Before you invest in an ICS account, give a member of the ADM team a call. The best part about working with us is our team. Our people are our secret sauce, and we have fun! We don’t operate a call center, and you never have to worry about unreturned messages. We are eager to help your business in any way we can. Start a chat now using the box at the bottom of your screen or visit our contact page to get started.