Keeping your company’s cash secure
We are living in a financially dangerous world. Since the inception of the financial crisis in September 2008, the number one question on most people’s minds has been “how do I keep my cash safe?”
Business owners, chief financial officers, vice-presidents of finance and corporate treasury teams have had to address the same issue. But for companies, the issue is more complex. When investing company funds, there are three considerations at play:
·Safety – is there a government guarantee in case the bank or financial institution goes out of business?
·Liquidity – how easy is it to access the money penalty-free?
·Yield – what return is being earned on the money?
While many companies are increasing their appetite for risk in the interest of increasing yield, safety continues to be the principal concern.
FDIC offers safety for business accounts
As a direct response to the uncertainty created by the financial crisis, the Federal Deposit Insurance Corporation or “FDIC” expanded the protection it offers to depositors at participating institutions. On personal accounts the limit was raised to $250,000 per person per bank. For business accounts, the protection was even broader. Under the Transaction Account Guarantee Program or “TAG”, participating depository institutions are able to offer unlimited protection on qualifying accounts. So if your business has $20 million or $200 million deposited in a qualifying account, it’s fully protected by the FDIC against insolvency.
Qualifying for the Transaction Account Guarantee Program
In order to qualify for TAG coverage, both your account and the institution where you have the account need to qualify. The institution needs to be an FDIC member institution. The account needs to be a non-interest bearing transaction account. For TAG qualification purposes this includes:
·Checking accounts that allow for unlimited deposits and withdrawals without advance notice;
·Interest on Lawyers Trust Accounts (IOLTAs) and their functional equivalents; and
·Negotiable Order of Withdrawal accounts (NOW accounts) that will not pay more than 0.50% interest.
Money market deposit accounts (MMDAs) are specifically excluded.
Recent changes to the Transaction Account Guarantee Program
The TAG program was set to expire in June 2010, but the FDIC recently extended the program until December 2010 and reserved the right to extend it through December 2011 if economic conditions warrant. However, many prominent banks have chosen to opt-out at different times or chose never to participate. The next opt-out date, June 30, 2010, will see many banks leave.
Checking if your bank participates in TAG
Here is a complete list of banks that have chosen to opt out of TAG. If your bank is on one of these lists, then you either do not have this additional coverage or will lose it as of July 1, 2010.
The past several years have taught business owners, chief financial officers and treasury department teams in large organizations that no bank is entirely insulated from potential failure. This is a sobering realization. While extensive protections exist for consumers, business owners have to exert a little extra effort to keep their company’s cash safe. Even a modest business has several million dollars in working capital. Does FDIC insurance protect you? Are their other options?
