,

Demystifying Insured Deposit Programs

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Abstract

This introductory product brief discusses insured deposit programs’ potential safety, liquidity, yield, diversification and ease of use benefits. It also cautions on their servicer risk, liquidity, size restrictions, risks related to FDIC payoffs and sustainability. Such vehicles may be well suited for moderate-sized accounts with government mandate that desire higher yield potential than government funds. They also may form the more conservative portion of a traditional treasury portfolio.

Introduction

In 75 days, institutional cash investors will enter a new era of cash management – find an alternative liquidity vehicle or face the uncertain world of floating net asset values (NAVs) and possible redemption fees and gates on institutional prime money market funds. Government money market funds, with stable NAVs and no fees and gates provision, appear to be the logical choice for many, if not most, prime fund investors.
While government funds are a fine option, there are other choices worth exploring. One of them is the insured deposit programs (IDPs) – the other government cash management vehicle. In this introductory product brief, we seek to demystify this often overlooked liquidity option, discuss its pros and cons, and explain why now may be an opportune time to consider it.
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Lance Pan joined Capital Advisors Group in 2003. As Director of Investment Research and Strategy, Lance assesses the risk and relative value of asset classes and credits, creates advanced credit approval and surveillance procedures, issues credit opinions, and provides investment strategy recommendations. Lance oversees Capital Advisors Group’s Credit Committee.

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