Another factor is that banks pay a fee to join the network and
then pay transaction fees. Some banks pass those costs on to CD
buyers by reducing the interest rate, says Angela Baker, treasury
officer at Allegiant Bank.
"We set CD rates every Tuesday and we've built in those transaction
fees for CDARS. We reduce the baseline interest rate by 15 basis
points across all maturities."
says customers are willing to pay for the convenience.
"We price CDARS (interest rate) a little bit less than one
of our weekly CD specials. The value with CDARS is the extended
FDIC coverage. You're going to pay a little something for that.
People have been very receptive; they understand the value."
Adding to CDARS value is the convenience factor of one consolidated
statement from your bank detailing your CDs. But while you know
exactly where your money is, the other banks don't know you by anything
other than an account number. The only institution, other than your
own bank, that sees your personal information is the Bank of New
York, which handles the CD transactions for all the banks in the
CDARS network, according to Jacobsen.
The minimum order
is $10,000. In other words, you'd need $100,000 on deposit in your
bank and at least $10,000 for deposit in another bank within the
There are more than 2,200 institutions currently in the network, primarily
community and regional banks. Promontory is run by three former
banking regulators who, according to Jacobsen, former chief of staff
of the Office of the Comptroller of the Currency and also of the
FDIC, wanted to help smaller banks compete on the national level.
"It's done by developing the
notion of synthetic size. It's a way to help banks
work together, work more effectively. Most of
these institutions don't have direct access to
the capital markets. They have higher cost of
funds, and more of a need to raise funds locally.
When a Bank of America borrows, it gets money
(at a very low rate). Most of our banks can't
even fathom that."
Joan Delaney says the CDARS program may mean CD investors will
be better informed about protecting their money through FDIC insurance.
"Every time I would go to a bank and move things around I
would specifically ask about FDIC insurance. They never said anything
to me like, 'Are you aware that cumulatively you have more than
$100,000 in this bank and you're not insured?'
"After all, they give better rates on jumbo CDs. I wouldn't
say they lie. It's just if you don't ask the right questions, they
Check the CDARS
Web site for a list of banks participating in the CDARS program.
How safe is your bank? See the Safe & Sound rating.