CDARS Accounts Can Capitalize on FDIC Coverage

As part of President Obama's "economic recovery" strategies, Federal Deposit Insurance Corporation ("FDIC") insurance coverage limits have recently been expanded (see my blog post Maximizing FDIC Insurance Coverage Through a Living Trust). This was done in an attempt to restore consumers' faith in banking institutions, and encourage deposits to strengthen our lending industry. However, for those interested in protecting large sums of money through a low-risk investment such as certificates of deposit ("CDs"), the standard FDIC coverage may not be sufficient. Enter the CDARS program.

WHAT IS CDARS?

A Certificate of Deposit Account Registry Service ("CDARS") account is a special network of banking institutions that work together to capitalize on Federal Deposit Insurance Corporation ("FDIC") insurance coverage. Essentially, CDARS is a network of FDIC insured banks that, when pooled together, can offer FDIC insurance coverage of up to $50 million for one depositor, rather than standard the $250,000 limit per account owner.

HOW DOES IT WORK?

A depositor deposits funds with a bank who is a member of the CDARS network. The bank then places the funds with other banks in the CDARS network. CDs are issued by banks in the network, but the depositor receives interest payments, bank statements, and one consolidated 1099 from the originating bank only. In general, the interest rate your earn on your deposit is determined by the CD maturity and deposit size. You earn one rate on your entire investment.

WHAT IS THE BENEFIT?

The main benefit is efficiency. Rather than splitting up your investments into multiple CD accounts at multiple banks in order to gain full FDIC coverage, you can deposit a much higher amount (up to $50 million) with one bank, in one account, and yet maintain full FDIC coverage. In this way, you only have to manage a single account!

In today's turbulent market, a CDARS investment is a safe way to preserve your assets while earning interest on your investment. Note also that CDARS accounts may be owned in the name of a family limited partnership or limited liability company, thereby "asset protecting" the underlying investment to a further degree.

If a CDARS investment may compliment your planning strategies, contact me to help you explore the option further. I would be delighted to facilitate an introduction to my contacts in the CDARS network, obtain current interest rate quotes, and advise as to ownership/term options.