What is Insured Cash Sweep? And Why It Matters

Ever wondered how financial technology companies are able to offer attractive FDIC Insurance compared to traditional banks? It’s because they tap into Insured Cash Sweep (ICS) services. 

ICS is a service that can automatically provide you with Federal Deposit Insurance Corporation (FDIC) insurance coverage on cash deposits in excess of the standard $250,000 limit.

If you’re a business owner with significant cash reserves, ICS can make it easy to protect your funds and get some additional peace of mind. Let’s explore how ICS works and how you can open an ICS account.

How Do Insured Cash Sweeps Work?

FDIC deposit insurance coverage protects your cash in case of a bank failure. If your financial institution overextends and becomes unable to meet its financial obligations, the FDIC will reimburse you for up to $250,000 in lost funds.

Importantly, that $250,000 limit is per depositor, per bank, not per account. If you had $500,000 spread across a checking and savings account at an FDIC-insured bank, you’d only be covered for up to $250,000 in losses. 

If the bank were to go under, you’d stand to lose half your very large deposit.

You have to open an account at a separate bank to secure additional FDIC coverage. That means an institution under a different charter, such as U.S. Bank and Chase Bank, not just a different physical location.

As you can imagine, that can be inconvenient. To insure $5 million, you’d have to open accounts across twenty financial institutions, which would be a cash management nightmare. Imagine trying to keep track of all the different mobile banking passwords.

Formerly known as the Certificate of Deposit Account Registry Service, Insured Cash Sweep offers a way around the issue. 

The ICS savings option automatically spreads your deposited funds across multiple FDIC-insured, IntraFI network banks in amounts no greater than the standard FDIC insurance maximum, ensuring that all your cash is covered.

Sweep networks are also beneficial to the financial institutions that participate in them. Those with more deposits than they want to hold can share their funds with banks that need additional cash to support their lending activities.

What Are the Downsides of Insured Cash Sweep?

The Insured Cash Sweep program is a convenient way to secure FDIC insurance coverage for your deposits, but the service isn’t without its potential drawbacks. Here are the most significant ones to be aware of:

• Recurring fees: Insured Cash Sweep may look automatic to the depositor, but the banking institutions involved work in the background to make each deposit placement. As a result, ICS accounts may have monthly or annual fees to cover the additional overhead costs.
• Limited interest earnings: It’s always good to earn as much interest as possible on significant deposit amounts. However, ICS accounts don’t always provide competitive interest rates, which could cause inflation to erode the value of your cash reserves more than you’d like.

Of course, these are only potential drawbacks. Ultimately, whether or not they’re an issue depends on the account. 

For example, the Jonestown Bank & Trust (JBS) ICS account has a $50 monthly service fee and earns 0.15% APY. Meanwhile, Zeni’s AI business checking account charges nothing for ICS services and offers $3M FDIC Insurance and up to 4.05% APY.

How To Open an ICS Account

Fortunately, opening an ICS account isn’t much more complicated than opening a standard personal banking or business banking account. Here are some steps you should follow:

• Compare ICS options: As we’ve established, ICS account terms can vary significantly between providers. In addition to their recurring fees and interest rates, that includes their insurance limits. It’s also worth considering factors like the issuing institution’s website experience and customer service reputation.
• Gather your documentation: Opening a bank account at a bank you don’t already have a relationship with involves verifying your identity, providing personal information, and making an opening deposit. Make sure you have the necessary details, a form of ID, and a payment method ready.
• Apply online or in person: Online banking services are convenient, but applying for an ICS deposit account in person has its benefits. You can get clarification from a real person, negotiate more personalized solutions, and establish a potentially valuable relationship with a banking representative.
• Elect ICS services, if necessary: Depending on your account, you may need to opt in to activate your ICS services. Make sure you understand the different versions available. For example, you may have the option to make your IntraFi network deposits more accessible in exchange for a lower interest rate or vice versa.

Once you’ve successfully opened your ICS account, you should be able to manage it like you would any other bank account. 

The ICS funds are automatically split into demand deposit accounts and money market deposit accounts across multiple institutions, but you’ll still only deal with one provider.

Typical Insured Cash Sweep Interest Rates

Insured Cash Sweep accounts typically carry interest rates that range from that of a standard checking account to that of a high-yield savings account. For example, as mentioned above, the JBS account earns 0.15% APY while Zeni’s offers 4.05% APY.

Of course, Insured Cash Sweep account rates tend to fluctuate along with the federal funds interest rate. Currently, the federal rate is 5.33%, which is higher than it’s been since the 2000s, so ICS rates are also relatively high.

How Secure Is Insured Cash Sweep?

Insured Cash Sweep accounts are as secure as any FDIC-insured bank account, which is generally very secure. 

In fact, because Insured Cash Sweep increases your overall FDIC coverage, ICS accounts are more secure than standard bank accounts if your deposits exceed $250,000.

What Is the FDIC Limit for Insured Cash Sweep?

The FDIC limit for Insured Cash Sweep is $150 million, which is achieved by spreading the funds across multiple banks using the IntraFi Cash Service. 

However, in practice, ICS accounts often include provisions in their deposit placement agreement that cap their coverage somewhere between $2 and $10 million.

Get More Coverage and Earn More Interest with Zeni

If you’re exploring banks for startups with ICS accounts, look no further than Zeni. Zeni’s AI business checking account includes automatic ICS services, granting you FDIC insurance coverage on balances of up to $3 million. 

In addition, you can currently earn interest of up to 4.05% APY on your deposits.

Zeni’s checking account is also completely free. There are no recurring monthly or annual fees when you subscribe to our bookkeeping software. You don’t even have to pay for wire transfers, saving you roughly $15 to $20 per payment.

Schedule a demo today to see how Zeni can offer you more peace of mind, more interest earnings, and more streamlined finances.

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