By Anita Tynski & Karen Shawdee / Published September 2017
Over the past decade, the number of savings options for cash reserves has truly expanded. Traditionally, associations needing FDIC insurance were forced to use repurchase agreements with low returns, or they were burdened by the task of spreading deposits across multiple financial institutions in traditional savings products like certificates of deposit. It’s hard to believe that it has been nearly 10 years since the financial crisis, but from that downturn arose a variety of new account options for associations seeking the security of FDIC insurance combined with greater access to those reserves and higher returns.
CDARS®, which is provided by Promontory Interfinancial Network and offered by banks throughout the United States that are members of the CDARS Network, provides customers with a savings option that IBERIABANK has offered for years. CDARS provides access to multi-million-dollar FDIC coverage through a single bank relationship. The initial deposit is divided into amounts under the standard FDIC insurance maximum of $250,000, and funds are placed with numerous financial institutions, each a member of the Network. CDARS has many upsides, including easy record keeping and reporting, safety, and security. The greatest advantage is the ability to work with one bank rather than opening accounts all over town or scouring the Internet. This alleviates the complications associated with numerous account signers, multiple bank statements, and the overall hassle.
These days, more and more clients are seeking solutions that grant them easy access to their funds to perform routine maintenance issues, property improvements, and at times, necessary repairs following storm damage. Promontory Interfinancial Network offers another attractive service called ICS®, also known as Insured Cash Sweep®. The primary difference between ICS and CDARS is that ICS provides access to multi-million-dollar FDIC insurance through demand deposit accounts, money market deposit accounts, or both. Accountholders continue to receive the benefit of multi-million-dollar FDIC insurance eligibility while also earning interest and enjoying daily liquidity. Accountholders may make unlimited withdrawals from ICS funds placed into demand deposit accounts (the ICS demand option) and may make up to six withdrawals in a calendar month from ICS funds placed into money market deposit accounts (the ICS savings option). This flexibility makes these accounts ideal for associations that want access to their funds while enjoying the peace of mind associated with access to FDIC protection (no one has ever lost a penny of FDIC-insured funds). Just like CDARS, the ICS service offers time savings, convenience, easy record-keeping (e.g., one regular statement), and the benefit of working directly with just one financial institution.
Most clients prefer the flexibility provided by the ICS demand and savings options in this rising rate environment versus CDARS, which places funds in certificates of deposit, which lock in the rate. In addition, CDs placed using CDARS are subject to early withdrawal penalties, which in some cases can reduce the principal. Nowadays, most clients are opting for the flexibility to access their reserves.
ICS and CDARS clients tend to be safety-conscious customers. Both services appeal to associations with more than $250,000 on deposit which are looking for the security associated with FDIC insurance eligibility. Many associations are advised by their CPAs and auditors to ensure that funds in excess of $250,000 are FDIC insured.
Clients enjoy the simplicity of ICS. Association board members frequently serve one- to three-year terms, so there can be high turnover with the treasurer’s role and board governance. Even with formal property managers in place, most boards prefer a concise and clean way of tracking accounts and monitoring balances. In addition, associations tend to like the liquidity available through ICS, with either same-day or next-day availability of their funds (depending on the ICS option used and the timing of the withdrawal).
In virtually all cases, with pro-per documentation and account signers involved, ICS accounts can be opened within a day. This involves a short meeting with your banker and the routine checks and balances associated with opening any type of bank account. In addition to the individual processes and procedures at your primary financial institution, there is also an ICS or a CDARS Deposit Placement Agreement that must be signed.
The ICS service provides monthly statements that are clear and concise. Statements show the dollar amounts in principal and interest earned and the names of the banks where these deposits are held. In addition, there is a free self-enrollment option to view ICS balances online, with 24/7 access through a secure web portal called the Depositor Control Panel.
Checks are not written directly against funds placed through ICS, but rather through your operating account with your primary bank.
Yes. Our clients are very happy with ICS and the security it can provide. They work directly with a trusted bank of their choosing—a participating Network member that understands their individual association needs—to access FDIC insurance through a variety of banks.
These services allow us to truly serve our clients, address their immediate financial needs, and plan for future renovations and capital improvements.
Placement of funds through the ICS or CDARS service is subject to the terms, conditions, and disclosures in the service agreements, including the Deposit Placement Agreement (“DPA”). Limits apply and customer eligibility criteria may apply. In the ICS savings option, program withdrawals are limited to six per month. Although funds are placed at destination banks in amounts that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”), a depositor’s balances at the relationship institution that places the funds may exceed the SMDIA (e.g., before ICS or CDARS settlement for a deposit or after ICS or CDARS settlement for a withdrawal) or be ineligible for FDIC insurance (if the relationship institution is not a bank). As stated in the DPA, the depositor is responsible for making any necessary arrangements to protect such balances consistent with applicable law. If the depositor is subject to restrictions on placement of its funds, the depositor is responsible for determining whether its use of ICS or CDARS satisfies those restrictions. ICS, Insured Cash Sweep, and CDARS are registered service marks of Promontory Interfinancial Network, LLC.
Karen Shawdee & Anita Tynski
Vice President, Commercial Relationship Management with IBERIABANK