When you think of certificates of deposit or CDs, you probably see it more as a personal investment for your money than a business related investment option. Certificates of deposit may not be a viable option for big business either, but for a small business owner, a CD, according to the Federal Deposit Insurance Corporation (FDIC), is a viable option.
Obama Administration and Small Business
The Obama Administration recently announced a $30 billion small business lending program in an effort to aid the struggling small business owners spread out across the country. In response to this relatively big announcement, the American Bankers Association (ABA) released some tips and advice for small business owners to use as guidelines when it comes to making decisions about various financial investment transactions, including using certificates of deposit as part of the investment planning process.
Certificates of Deposit Are FDIC Insured
As a small business owner, you probably know that your business checking and savings accounts are insured by the FDIC. This insurance also covers NOW accounts and money market deposit accounts. The FDIC insurance extends even further to include certificates of deposit (CDs), insuring up to $250,000 per depositor per bank.
Since the FDIC does not insure investments such as stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, certificates of deposit may be better options for small business owners to earn a greater return on their investment without the added risk.
Participate in a Deposit Placement Program Such as CDARS
The ABA also recommends that small business owners opt to participate in a deposit placement program such as CDARS, which stands for Certificate of Deposit Account Registry Service. The benefit of participating in a program like CDARS is that it protects small business owners who have deposit amounts that exceed the FDIC insurance coverage limits of $250,000 per bank.
CDARS provides further protection to small businesses by allowing banks to offer up to $50 million in FDIC coverage. The way they accomplish this is that the banks spread the deposits over several banks, which helps to spread the risk. To the small business customer, however, this is a seamless process because the small business accounts are managed by one bank.
Since over 3,000 banks participate in the CDARS service, it’s readily available to most small business owners. If your bank does not offer CDARS or a similar program, you also have the option of depositing your funds into a couple of different banks to stay within the FDIC coverage limits.
related visualeconomic articles
