What is ICS?
ICS is an acronym for Insured Cash Sweep Service. With ICS, an individual, non-profit organization, municipality, or business can work with their primary financial institution to place excess cash balances into demand deposit accounts (checking accounts) or money market accounts held by a network of qualified Federal Deposit Insurance Corporation (FDIC)-insured banking institutions to have full FDIC coverage on balances that are larger than the standard coverage limit.
FDIC is part of the Banking Act of 1933, which was signed into law after The Great Depression. The standard FDIC deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. FDIC deposit insurance covers certain deposit products such as checking and savings accounts, money market deposit accounts, and certificates of deposit (CDs). FDIC ownership categories include single accounts, certain retirement accounts, employee benefit accounts, joint accounts, trust accounts, business accounts, and government accounts.
Under the standard FDIC deposit insurance coverage limit and before ICS came about, an individual or business depositor could be faced with monitoring rates and maintaining relationships and accounts with multiple financial institutions to remain within the coverage limits. ICS deposit placement service streamlines the process for depositors.
How does ICS work?
With ICS, large depositors can maintain FDIC-insured multi-million-dollar demand deposit account balances, money market account balances, or both through a single financial institution. Deposits that exceed the FDIC coverage amount are distributed through the ICS network to other qualified, participating institutions to allow for full FDIC coverage of the balance. ICS network financial institutions set the rates that they offer, which are usually competitively priced for their market.
Your primary financial institution acts as custodian for your ICS deposits. Funds deposited for placement in an ICS deposit account are divided into amounts below the FDIC coverage maximum and placed in accounts at other ICS network institutions. Working directly with your primary FDIC-insured financial institution, you can obtain FDIC coverage for your funds through many other institutions.
When your financial institution sends money out to ICS network institutions, other ICS network institutions send the same amount of money to your bank as a network participant. ICS network members reciprocate deposits on a dollar-for-dollar basis, ensuring that the same amount of funds placed through the network are returned to your financial institution and your bank can continue to locally support the growth of your community.
What are the benefits of ICS?
ICS offers depositors a streamlined approach to holding FDIC-insured demand deposit and/or money market balances at multiple financial institutions.
- Individual depositors can work with one financial institution and don’t need to seek out and establish multiple banking relationships to have FDIC coverage for balances exceeding the FDIC limits.
- ICS demand deposit accounts and money market accounts offer funds liquidity because they are not subject to maturity date terms like certificates of deposit (CDs).
- Investing in ICS can be an alternative to investing in U.S. Treasuries or government money market mutual funds. Like Treasuries, ICS money market and demand deposit accounts are backed by the U.S. government.
Are there drawbacks to ICS?
The funds deposited through ICS are placed in a demand deposit account, money market account, or both. These accounts have several characteristics and rules, and the ICS program has some traits that a depositor might want to consider.
- ICS funds may pay lower rates than what you could earn on other financial instruments.
- Money market and demand deposit account funds are not subject to maturity dates like CDs but depending upon the amount and the account terms with your financial institution, large withdrawals could be delayed by a day or two.
- ICS accounts may require additional overhead for financial institutions and the financial institution may charge a monthly fee or a portion of the interest earned on the account to cover the additional overhead expenses.
- The account may receive unlimited deposits, however, the account may have a monthly withdrawal limit.
The information contained in this article should not be construed as financial, legal or tax advice, and may not be reflective of terms and features currently offered by Enterprise Bank. Please contact us for details on current product offerings and rates.
To learn about products and services offered by Enterprise Bank including ICS accounts, please visit https://www.enterprisebanking.com. If you would like to speak to an Enterprise Banker about opening an account, we invite you to call us at 877-671-2265 or visit one of our convenient branch locations.