CDARS vs Surety Bond for amounts over $250,000?

I suggest asking a banker at one of the institutions that offer these products, because financial instruments can be complicated and have hidden gotchas.

With both of these options you'll have multiple financial institutions involved, so you'd want to pay attention to solvency and other measures of risk. For what it's worth, we put our reserves in one of the Too Big to Fail banks (that sells CDARS) because odds are they will still be standing when the rest of the country has collapsed. That's about as conservative and uncontroversial a decision that a board member can make (although I expect some would argue with it - because HOA).

My understanding is that CDARS is a legal way to get around the FDIC limit - you have the convenience of putting all money (apparently) in one bank, but the funds are actually in multiple banks. Of course each of these is insured up to $250,000, so if one became insolvent you should still be fine. This is sort of plain-vanilla banking anymore. My brokerage account has a similar feature for the cash management sub-account which is also FDIC insured.

Bonds are debt instruments, so a different sort of beast. I believe that they are a different way to achieve the same end (protecting funds in excess of $250,000). If everything goes fine, you probably won't notice a difference, but I'd assume that there are different risks associated with each approach.

Here is an overview of the difference between a bank letter of credit and a surety bond that may or may not be helpful:
https://cdn.ymaws.com/www.surety.org/resource/resmgr/LearnAboutSurety/Surety_Bond_vs_Bank_LOC.pdf

I spent part of my career working in one of the big brokerage houses, but banking is sort of out of my wheel house. However, based on what I know about finances, surface simplicity often hides complexities underneath. If I were researching this, I'd ask the bank to take me through both scenarios: $750,000 in CDARS (spread over several banks) vs. $750,000 held in one bank with $250,000 FDIC insurance plus $500,000 surety bond.

Ask about:

* different interest rates?
* different tax reporting?
* differences in risk? (CDARS is 100% insured by FDIC, the surety bond is purchased/provided by the bank, so I'm guessing slightly more risky)
* differences if you need $300,000 on short notice?
* what happens in detail if the bank you're working with becomes insolvent, including how long it would take you to get a hold of the money in each case. This is important if you will be need to replace roofs or something soon, and I'm guessing this is where things could get interesting.

And one final thing to ask yourself: is there any advantage to simply splitting the money up between different financial institutions yourself? This may not be practical if you have large reserves, obviously.

It does seem that way and I've seen this arrangement recommended elsewhere. But there are FDIC limits for a reason and if the banks involved go belly up then someone is going to lose. "Don't worry, it won't be you," seems too good to be true. What's the catch? The banks have pulled out all the stops in setting up a huge casino on Wall Street and it seems par for the course for them to mislead everyone about what's really going on.

It may all be fine. I like the idea of going through all the scenarios to find out at what point it's not.

Thanks, CathyA3. Good info.