Academy/Banking, Cash & Internal Controls
CDs
What a certificate of deposit does for association reserves, and what it doesn't.
A CD (certificate of deposit) is a bank deposit product that locks association reserve funds at a fixed rate for a set term, often three months to five years. It is FDIC insured up to $250,000 per bank, combined with the association's other deposits there, and it usually charges a penalty for withdrawing early.
What a CD actually is
A CD is a bank deposit product, not a security. The association agrees to leave a set amount at the bank for a set term in exchange for a fixed interest rate. Because it is a deposit product, it is insured the same way a savings account is: up to the standard FDIC limit, combined with every other deposit the association holds at that same bank, checking, savings, money market deposit accounts, and other CDs together.
"The standard maximum deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."
Source: Your Insured Deposits, FDIC
Naming more officers as signers on the CD does not raise that limit. The association is one depositor no matter how many people can sign the account.
The tradeoff: locked money versus a Treasury bill
A CD ties up money for its full term. Cashing out before maturity usually means paying an early withdrawal penalty, which eats into the return the board was counting on. A Treasury bill works differently.
"Investors can hold bills until maturity or sell them before maturity through the secondary market."
Source: Treasury Bills, Bureau of the Fiscal Service, U.S. Department of the Treasury
That does not mean a Treasury bill is always better. It means the two products have different exit costs, and a board should pick the one that matches when the money is actually needed, not just the one with the better rate. A widely used framework for public-sector reserve investing ranks the priorities in order: safety first, then being able to reach the money, then yield last. Money earmarked for a roof replacement due in three years belongs in something that matures around then, not something that penalizes an early exit if the timeline shifts.
Staying under the $250,000 line with more than one CD
If reserve funds exceed the FDIC limit, a board has two common ways to keep the whole balance insured. One is opening CDs at more than one bank directly. The other is a deposit-placement service that splits a single large deposit across a network of banks while the association keeps one banking relationship.
"When your funds are placed through the services, they are divided into amounts under the standard FDIC maximum and placed with other network members, each an FDIC-insured institution."
Source: ICS and CDARS FAQs, IntraFi Network LLC
Either approach avoids the manual work of a board opening and separately tracking accounts at several banks just to stay covered.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
Your association puts $300,000 into a twelve month CD at one bank, and the bank fails before maturity. How much does FDIC insurance return?
The board adds three more officers as signers on the CD, hoping to raise FDIC coverage. What actually happens to coverage?
The association needs cash six months into a twelve month CD, sooner than expected. What is its most likely position?
Sources
- Your Insured Deposits, FDIC
- ICS and CDARS FAQs, IntraFi Network LLC
- Treasury Bills, Bureau of the Fiscal Service, U.S. Department of the Treasury
- Sample Investment Policy, Government Finance Officers Association, via City of San Anselmo
Banking, Cash & Internal Controls
Next, see how FDIC coverage adds up across every account type the association holds, not just CDs.
Which accounts require prior board approval to open or fund, who may sign for a CD, and any early withdrawal terms are set by your bank's policies, your governing documents, and, in some states, statute. Confirm the specifics with your bank and your own reserve policy before committing funds to a term.