Small Business Series: CDARS versus Marketplace Banking

CDARS (Certificate of Deposit Account Registry Service) and marketplace banking are two different ways to manage your deposits, each with their own set of pros and cons. CDARS is a service that allows you to deposit funds into multiple banks while still receiving FDIC insurance coverage up to $250,000 per account. Essentially, CDARS allows you to spread your deposits across multiple banks without having to manage multiple accounts yourself.

This can be a great option for those who want to maximize their FDIC insurance coverage without having to do the legwork themselves.On the other hand, marketplace banking is a newer concept that allows you to earn higher interest rates on your deposits by connecting you with a network of banks and financial institutions. Essentially, marketplace banking platforms act as intermediaries between you and the banks, allowing you to access higher interest rates than you might be able to get on your own.

Now let’s take a closer look at some of the pros and cons of each option:

• Pros of CDARS:

  • FDIC insurance coverage: With CDARS, you can receive FDIC insurance coverage up to $250,000 per account at each participating bank. This means that even if one of the banks were to fail, your deposits would still be protected.

  • Convenience: By using CDARS, you can spread your deposits across multiple banks without having to manage multiple accounts yourself. This can save time and effort.

  • Simplified reporting: Because CDARS consolidates your deposits into one account statement, it can make it easier to keep track of your deposits and interest earnings.

• Cons of CDARS:

  • Limited interest rates: Because CDARS is designed primarily for safety and convenience, the interest rates offered may not be as competitive as those available through other options.

  • Fees: Some banks may charge fees for using CDARS, so it’s important to read the fine print before signing up.

  • Limited flexibility: Once you deposit your funds through CDARS, you may not be able to withdraw them until the maturity date of the CDs. This can limit your flexibility if you need access to your funds before then.

• Pros of marketplace banking:

  • Higher interest rates: Because marketplace banking platforms connect you with a network of banks and financial institutions, you may be able to earn higher interest rates than you would be able to get on your own.

  • Flexibility: With marketplace banking, you can typically withdraw your funds at any time without penalty. This can be a great option if you need access to your funds quickly.

  • Diversification: By spreading your deposits across multiple banks, you can diversify your risk and potentially reduce the impact of any one bank’s failure.

• Cons of marketplace banking:

  • No FDIC insurance coverage: Because marketplace banking platforms are not banks themselves, they do not offer FDIC insurance coverage. However, they may offer other types of insurance or protection or work with banks that offer FDIC insurance coverage.

  • Complexity: Because marketplace banking involves multiple banks and financial institutions, it can be more complex than other options. You may need to manage multiple accounts and keep track of different interest rates and terms.

  • Potential for lower interest rates: While marketplace banking can offer higher interest rates than traditional savings