Non Profit Finance: How to Insure Your Bank Deposits

by Nancy Church

Quick, what does FDIC stand for? The Federal Deposit Insurance Corporation is the insurer of your organization’s bank deposits, as well as your personal ones. Most accountants, finance managers and board members know that this insurance tops out at $100,000 per depositor. They also know that any deposits in excess of $100,000 are at risk: if the bank fails, your organization will not get all of its money back.

A year ago, who considered bank failure anything more than a remote possibility? But lately, we’ve seen some relatively large banks go out of business in the US and it’s a good time to be concerned. Does your nonprofit have all its money in insured accounts? Look carefully, even if you think of the organization as cash-poor: even small not for profits can find themselves with more than the FDIC insured amount deposited in their banks.

Do you receive grant or contract funds in advance of performing services or carrying out program activities? Have you been able to build reserves? If so, it’s not unreasonable that you might have exceeded that $100,000 amount in cash or money market deposits. There’s a way to reduce your risk of losing those excess amounts to 0% (yes, zero): you can open accounts at several banks and move money around when you need to. But if you have $300,000 in reserves, you’re dealing with at least four different banks. There’s another way to solve the problem.

Banks become members of CDARS, which stands for Certificate of Deposit Account Registry Service, LLC. Then they can make deposits on behalf of their customers at other member banks. CDARS job is to make sure that none of the deposit accounts carries a balance in excess of $100,000. When you enter into this arrangement with your bank, you negotiate an interest rate that applies to all the accounts. All of the accounts are reported together on one monthly statement.

As of this writing, more than 2,200 banks, most of them regional or community banks, are members of CDARS. That means there’s likely to be a member bank in your area, no matter where you are in the USA.

I was curious to find out what benefits membership in CDARS brings to banks on the theory that someone is making money on this set-up. What I’ve discovered is that small banks benefit from having a network to help them with their own cash flow and depository issues, so they benefit directly without charging or – it seems – paying a fee. In other words, CDARS enables them to compete with the services larger banks can offer.

The one draw-back to buying CDs through CDARS may also be an advantage. When you sign a CDARS agreement and deposit money with your bank, you will negotiate a CD rate that will apply to all the CDs your money purchases, even if the bank that ultimately ends up with your money would have offered you a higher rate if you had deposited it directly. It’s also true that you might have been offered a lower rate by said bank, in which case it becomes an advantage to be with CDARS. And you haven’t had to spend time making a phone call or visiting a bank or requesting a proposal ? and that seems like a true advantage!

Participating banks can be found at www.cdars.com, where you can search by state or by bank name to find resources near you.

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