When Joan Delaney's elderly father began losing his sight and
hearing, he decided to sell his house and downsize his lifestyle.
The sale, along with a lifetime of smart financial management, left
him with a sizable amount of money to invest. Given his advanced
age, the stock market was out; certificates of deposit were in.
Delaney was put in charge of depositing the money in various banks
so that it would all be FDIC-insured.
"He was always saying, 'Don't
put more than $100,000 in any one bank,'"
Delaney remembers. "But it's time-consuming
running from bank to bank. I was trucking Dad
around to the banks to sign power of attorney
cards. And back when CD
rates were high he wanted things moved from
one bank to another."
The law changed in April 2006 to allow certain retirement accounts to be covered up to $250,000 by the Federal Deposit Insurance Corp., the $100,000 limit still applies to ordinary accounts. In addition, there's a program that might have solved Delaney's
problem. It allows you to keep up to $50 million -- should you be
so fortunate -- invested in CDs at one bank, and have it all covered
by FDIC insurance. It's called the Certificate of Deposit Account
Registry Service or CDARS, pronounced "cedars."
Here's how it works.
Sally Jones has $130,000 she wants put in CDs in bank A. Bank A
gives her CDs worth $95,000 -- leaving a little room for interest
-- and sends Sally's remaining $35,000 to a company that knows bank
B will issue Sally a CD for the remaining $35,000. In return, bank
B buys $35,000 in CDs for its customers from bank A.
The company in the middle is Promontory Interfinancial Network.
It acts as a sort of clearinghouse, matching deposits from one institution
with another so funds that a bank places with CDARS essentially
remain on the bank's balance sheet.
"Prior to CDARS, if you wanted to insure more than $100,000,
you had to do it through (different categories of legal ownership.)
Now you can title it any way you want and we can cover it through
the CDARS program," says Russell Pemberton, vice president
at Pulaski Bank.
Your bank sets the interest rate for the CDs bought through other
banks. If Sally wants her excess money to buy a two-year CD and
her bank, bank A, is paying 2 percent on that maturity, then bank
B will issue the CD at 2 percent even if they're paying more or
"From the customer's perspective it's invisible," says
Promontory's President Mark Jacobsen.
"If I'm paying more for your customer's money and you're paying
less for mine, we swap the difference at present value. Say the
difference is $250, you'd give me the $250 up front and then it's
like we're issuing CDs at the same rate."
One drawback to the convenience of CDARS is that you can miss out
on higher CD rates offered by banks other than your own. If you're
willing to do a little extra legwork, you could get around that
by finding a bank in the CDARS network that you believe consistently
offers higher rates and open an account with them specifically for