Managing Excess Cash Reserves

By Sheila Raposa
Vice President, Cash Management

When your business has more than $250,000 in cash reserves, the last thing you need is the burden of shuffling funds in and out of banks or money markets to keep those accounts within FDIC insurance coverage (currently $250,000 per account ownership type, per bank).

There are three easy solutions to meet those needs.

Insured Cash Sweep® (ICS), Demand Deposit Marketplace℠ (DDM), and Certificate of Deposit Account Registry Service® (CDARS) are all services offered by financial institutions to help you manage your excess cash reserves to address safety, liquidity, and return. All allow you to combine the convenience of working with just one bank with the security of having access to FDIC insurance exceeding $250,000.

Demand Deposit Marketplace℠ (DDM)

What it is

Demand Deposit Marketplace is a liquid FDIC-insured alternative to money market mutual funds that enables your business to obtain millions of dollars of FDIC insurance with daily liquidity and potentially higher returns.

How it works

DDM is a “hands off” program that spreads excess cash reserves across a network of FDIC-insured banks, maintaining FDIC insurance coverage, ensuring easy access to funds when needed, and potentially earning competitive interest rates. Money moves back and forth between your business operating account and DDM.

Why choose DDM?

• Simplicity and convenience. Moving funds between your operating account and DDM is as easy as writing a check or sending a wire—there is no need to change your deposit or withdrawal process. Fund transfers are hands off; when your operating account exceeds $250,000, funds are automatically moved to DDM.
• Liquidity: Immediate liquidity is available for operating expenses.
• Hands off. Your business can earn competitive interest rates without actively managing investments.

Insured Cash Sweep® (ICS)

What it is

Like DDM, the ICS program allows your business to earn interest and access multi-million-dollar FDIC protection on your large savings deposits. Unlike DDM, ICS is self-directed, giving you more control and responsibility over the process.

How it works
The ICS program works by spreading your excess cash across a network of FDIC-insured member banks, ensuring that your deposits are eligible for FDIC insurance coverage up to the maximum FDIC coverage limit. While ICS offers liquidity, it is not as immediate as DDM or a standard demand deposit account. There may be some delays in accessing funds when needed urgently.

Why choose ICS?

• Flexibility on liquidity: You don’t need funds immediately.
• Control: You want more control and hands- on management of your investments.

CDARS® (Certificate of Deposit Account Registry Service)

What it is

CDARS® gives you access to multi-million-dollar FDIC insurance through participating network banks and is one of the safest and smartest investment vehicles for investors looking to protect their large dollar investments while earning CD-level returns that may compare favorably to Treasury and money-market-fund yield.

How it works

When you place a deposit with a bank offering CDARS, the institution places your funds into CDs that are issued by other members of the CDARS network, ensuring that both the principal and interest are eligible for FDIC insurance. CDARS investments have restricted liquidity, as the funds are locked in CDs.

Why choose CDARS?

• Simplicity. With a single deposit, your business can secure FDIC coverage for excess reserves for the short term without relationships with multiple banks, multiple bank statements, or multiple reconciliations.

• Flexibility on liquidity: You don’t need funds immediately.

Ultimately, the choice among ICS, DDM, and CDARS depends on your business's risk tolerance, liquidity needs, and investment goals. Your first step is consulting with experienced financial advisors offering these services to determine the best fit for your business.

Washington Trust is Your Cash Reserves Resource

Our commercial banking team at Washington Trust helps your money work harder while allowing you to focus on running your business. Our experienced advisors will meet with you to review available programs, answer your questions and help you to choose the program best suited to help you manage your excess cash reserves and meet your specific goals of safety, liquidity, and return. Through our digital platform, you will have daily real-time updates on your funds. It’s all part of what we do at Washington Trust, a full-service community bank where what we value is you.