Non Profit Finance: Insuring Your Bank Deposits
by: NancyChurch |
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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.
It's hard to imagine your bank failing, and a short while back, it wouldn't have occurred to most of us that it would be possible. But now, we are seeing even large banks go under. How much risk is your nonprofit taking with its current banking arrangement? The board or management team may think of your organization as small and cash poor, yet even small not for profits may have deposits that, over time, reach that $100,000 mark.
If your organization is at all successful in building reserves, it's likely to have well over that $100,000 amount in cash or money market deposits. If it receives large grants in advance, chances are it's in the same leaky boat. You can reduce your risk of losing those excess amounts to 0% (yes, zero) by opening accounts at several banks and moving money around when it's needed. That means, if you have $500,000 in reserves, you're dealing with 5 different banks. There's an easier way to get to 0% risk that you may want to consider.
Certificate of Deposit Account Registry Service, LLC (or CDARS) is a service that banks become members of and they can then make deposits on behalf of their customers at other member banks. CDARS makes sure that none of the deposit accounts has a balance that exceeds $100,000. All of the accounts are presented on one monthly statement to you, and they all bear the same interest rate.
CDARS has more than 2,200 member banks as of this writing. There's likely to be a member bank in your area since most of the members are community or regional banks that are too small to be able to compete with big banks when it comes to spreading your money around safely.
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.
There's one possible draw-back to buying CDs through CDARS. When you sign a CDARS agreement and deposit money with your bank, you will negotiate a CD rate that applies to all the CDs purchased with your money, even if some of the banks involved would have offered you a higher rate if you had deposited it directly with them rather than through the service. On the other hand, it's also possible that you might have been offered a lower rate by said bank, in which case being with CDARS is an advantage. And you haven't spent any at all making phone calls or visiting banks or requesting proposals -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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About the Author
If you're looking for moreadvice and resources on nonprofit accounting and preserving your organization's assets, make sure you check the resources Nancy Church offers on nonprofit finance.
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