Protecting your assets Featured

7:00pm EDT February 23, 2009

In the current atmosphere of economic uncertainty, financial institutions and businesses alike are under pressure to reduce risk of financial loss as well as continue their vital partnerships. In light of the turbulent markets and the resulting instability of some banks, it’s in the best interests of companies to protect their interest-bearing deposits through the Certificate of Deposit Account Registry Service (CDARS), which protects funds over today’s $250,000 FDIC limit.

“These days, people are looking for a little stability,” says Diana Brockway, vice president of treasury management at MB Financial Bank. “Businesses can gain peace of mind by looking at ways to invest their money at competitive rates and protecting their funds by collateralization or using multiple banks’ FDIC insurance.”

Smart Business asked Brockway how companies can use CDARS to complement their present FDIC insurance and protect interest bearing assets from future changes in the market or FDIC insurance coverage.

What is CDARS and how can it be useful to businesses?

Currently, a business only has FDIC insurance up to $250,000 on interest-bearing accounts per financial institution. Companies who want the security of FDIC deposit insurance for deposits greater than $250,000 can take advantage of CDARS, which allows a business to deposit up to $50 million in certificate of deposit (CD) investments. These CDs can have different maturities and rates. When using the CDARS program, network member banks exchange funds so the equivalent of a client’s original deposit comes back to the originating bank. Interest can be earned on multiple $250,000 CDs with the convenience of working with one financial institution. CDARS allows the entire investment to be fully covered by FDIC insurance as long as the total per entity isn’t more than the CDARS limit.

What do businesses need to do to take full advantage of CDARS?

Once the CDARS application is complete, the company picks the term and rate that meets its needs, and implements the CDARS investment for the business. The business then receives a receipt from the bank with the actual breakdown of the CDARS banks participating in the business’s investment. The originating bank takes care of managing the FDIC insurance as well as the movement of funds to the other participating banks.

How can you leverage CDARS within FDIC limits and the changes in the market?

Changes to the FDIC insurance limit are scheduled to return on Dec. 31, 2009, at which time the FDIC limits will be reviewed. As a result, it is most important to be aware of what the FDIC insurance limit is when looking to place deposits in a bank. If changes are made to the FDIC limit, companies should talk to their bankers about how this will affect their banking accounts and CDARS CDs. Modifications to the account structure may be appropriate.

What types of businesses can get the most benefit from CDARS?

Any business that has more than $250,000 in interest-bearing accounts can benefit.

We’ve seen many associations, municipalities and not-for-profit organizations become very active in using this product even before the economic downturn. Many nonprofits have investment policies that don’t allow them to keep funds over the FDIC limit in any one bank. In a municipal, association or not-for-profit situation, there is a fiduciary responsibility to keep the funds safe, so CDARS is a perfect solution for them. The CDARS program has become more popular in the corporate environment because of the financial condition of many banks. Many companies and corporations — no matter their size — are now becoming increasingly concerned about losing their invested funds so they, too, are migrating to the CDARS investment product.

Another benefit of CDARS is that, because funds are exchanged dollar-for-dollar with other network banks, the equivalent of funds invested stays in the local bank. With CDARS, effectively, the company’s funds are invested in the originating CDARS bank’s community in the form of loans to individuals and businesses, unlike a brokered CD, where the funds are invested in the brokered CD’s bank wherever in the United States that bank might be located. For many socially and community-minded investors, this is an additional benefit of using CDARS.

How can CDARS benefit businesses in an uncertain economy?

At this point in time, preservation of capital is invaluable to businesses as well as individuals looking for safety and security of invested dollars. Even with a CDARS network comprising of more than 3,000 participating banks, the originating bank manages a company’s investments, offering a simplified solution in a complicated marketplace.

DIANA BROCKWAY is vice president of treasury management at MB Financial Bank. Reach her at or (847) 653-1971.