High CD rates may sacrifice safety

Don Taylorq_v2.gifDear Dr. Don,
I know it's not a good idea to keep all my money with one bank, but I couldn't pass up the CD rate that Discover Bank offers, presently 1.84 percent for 12 months. So I have $500,000 with them, which I laddered into 10 CDs. I feel safe since it is FDIC-insured. Would you agree?
-- Corina Certificates

a_v2.gifDear Corina,
There's no upside to keeping deposits in a bank above the insurance limits of the Federal Deposit Insurance Corp. By definition, uninsured deposits aren't FDIC-insured. Your feeling of safety is misguided.

You can do a search on Bankrate using its "Compare Rates" feature and find one-year CDs with rates higher than your Discover Bank CD. The current high rate is a 2 percent annual yield for a one-year CD.

There are ways to finesse the issue, like using CDARS, which allows you to deal with one depository institution and have your deposits insured for up to $50 million. You may not get the highest rate in the land on your CD but you'll be insured.

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Read more Dr. Don columns for additional personal finance advice. To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money."

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