CDARS: Beat the $100,000 FDIC limit


In October 2008, the FDIC insurance limit was raised to $250,000 from $100,000, effective until Dec. 31, 2013.

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 less.

"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 CDs.

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