Small Business Series: Protect Your Cash with CDARS
Small businesses often face a number of challenges, including managing cash flow, accessing credit, and dealing with regulatory requirements. One challenge that is often overlooked, however, is the need to protect the business's assets from risks such as theft, fraud, and market volatility. One tool that small businesses can use to manage this risk is the Certificate of Deposit Account Registry Service (CDARS).
CDARS is a program that allows small businesses to access FDIC insurance on their deposits above the standard $250,000 limit. This is achieved by spreading the funds across multiple banks that participate in the program. The program is designed to make it easier for depositors to manage their large deposits while maintaining full FDIC insurance coverage, without the need to open accounts at multiple banks themselves.
There are several reasons why small businesses should consider using CDARS to protect their assets:
FDIC Insurance Coverage
The primary benefit of using CDARS is the FDIC insurance coverage. FDIC insurance provides depositors with protection against the loss of their deposits if an FDIC-insured bank fails. The standard insurance limit is $250,000 per depositor per bank, but by using CDARS, small businesses can access coverage for deposits above this limit.
Simplified Account Management
Another advantage of using CDARS is the simplified account management. Small businesses can work with a participating financial institution to place a large deposit, which is then divided into smaller amounts and placed in CDs at other participating banks within the CDARS network. This means that the small business only needs to work with one financial institution to manage their deposit, rather than opening accounts at multiple banks themselves.
Competitive Interest Rates
CDARS can also provide small businesses with access to competitive interest rates. By spreading their deposits across multiple banks, small businesses can access a broader range of interest rates than they would by keeping their deposit at a single bank. Additionally, the CDARS program is designed to ensure that the small business earns the full amount of interest that would be earned if the deposit were held directly at each participating bank.
Enhanced Liquidity
CDARS can also provide small businesses with enhanced liquidity. Although CDs are typically associated with longer-term investments, the CDARS program allows depositors to access their funds on a rolling basis as each CD matures. This means that small businesses can access their funds if they need to, without penalty or loss of interest.
Risk Diversification
Finally, CDARS can help small businesses to diversify their risk. By spreading their deposits across multiple banks, small businesses can reduce their exposure to the risks associated with a single bank or a single geographic region. This can help to protect the business's assets from risks such as theft, fraud, and market volatility.
All businesses need to protect their cash. CDARS program is a powerful tool that small businesses can use to protect their assets and manage their risk. By providing access to FDIC insurance coverage, simplified account management, competitive interest rates, enhanced liquidity, and risk diversification, CDARS can help small businesses to achieve their financial goals while minimizing their exposure to risk.
