With the recent stress in the financial market, many boards and property management companies are beginning to more closely monitor the insurance of their funds. For many years now, leaders in the HOA banking and auditing industry have stressed the importance of following established laws and adhering to their fiduciary responsibility that governs the insurance of these funds, and the recent financial stresses further emphasize this need. One of the most widely accepted and valuable tools for ensuring full insured funds are a program called CDARS.

What is CDARS?

CDARS or the Certificate of Deposit Account Registry System allows a Homeowners Association to receive up to $50 million in FDIC protection through a participating bank, such as Community Association Banc. CDARS can be a valuable and secure cash management or longer-term investment tool for you or your business.

By being a member of this special network, a participating bank can place your funds into multiple bank charters in quantities below the FDIC insurance maximum. In other words, when you place a large amount with a participating institution, they place your funds into certificates of deposit issued by other banks in the network — in increments of less than $250,000 — so that both your principal and interest are eligible for complete FDIC protection.

This altogether eliminates the need to run around opening multiple accounts at multiple banks, managing various interest rates, organizing interest disbursements from various sources, or manually consolidating monthly statements. It also means your HOA receives one regular bank statement, manages one relationship and receives one 1099.

CDARS has become the predominant tool used by HOAs that manage reserve accounts in excess of $250,000. The CDARS system ensures full safety and convenience while allowing your HOA to earn CD-level returns which may compare favorably with other investment alternatives, including Treasuries, corporate sweep accounts, and money market mutual funds.

The product works in five easy steps that eliminate stress and save time.

  1. Your organization signs a CDARS Deposit Placement Agreement and deposits money with the bank.
  2. Funds are placed using the CDARS service.
  3. Your association’s CDs are issued by other banks in the CDARS network.
  4. Your association receives confirmation from the bank of its CDs.
  5. Your association receives consolidated interest payments and statements from the bank.
One thing to remember is the interest rate for your CDARS CD is set by the bank that you are working with. In other words every bank that uses CDARS sets their own interest rates, which are usually very close to the interest rates on that banks own CD’s. Making CDARS not only a safe investment but also a higher interest earning investment.
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