CDARS: Beat the $100,000 FDIC limit

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."

Pemberton 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.

Eventually, you should be able to place a CDARS order any business day, but for now, orders are placed once a week. 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 network.

There are more than 2,000 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 don't volunteer."

Check the CDARS Web site for a list of banks participating in the CDARS program.

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