When I hear the acronym “CDARS”, I think of delicious cinnamon spices. For cash-heavy millionaires and businesses, CDARS are…a little delicious.
CDARS – the Certificate of Deposit Account Registry Service – is a convenient way for safety-conscious investors to access up $50 million in FDIC insurance. CDARS was founded by the Who’s Who of the financial industry in 2003. After the failure of IndyMac, CDARS became more important and appreciated. Today there are more than 3000 bank members.
CDARS is a solution for many cash-heavy investors – businesses, non-profits, and credit unions, public funds, advisors (including trustees, CPAs, financial planners, and lawyers), individuals, and socially responsible investors.
How CDARS work
Everything is handled through a CDARS Network member of your choice. Financial institutions that can offer CDARS are members of a unique network. When you place a large deposit with a CDARS Network member, that institution uses the CDARS service to place your funds into CDs issued by other members of the CDARS Network. This occurs in increments below the standard FDIC insurance maximum so that both principal and interest are eligible for full FDIC insurance. By working directly with just one institution, you can receive insurance coverage from many. And, you receive just one regular consolidated account statement.
When you sign up for CDARS, here’s what happens:
- You sign a CDARS Deposit Placement Agreement and invest money with a member of the CDARS Network (a relationship institution).
- Your funds are placed using the CDARS service.
- Your CDs are issued by other members in the CDARS Network.
- You receive confirmation of your CDs from your relationship institution.
- You receive consolidated interest payments and statements through your relationship institution.
CDARS offers multiple benefits to investors who want to combine the security of access to FDIC insurance with the convenience of working with just one financial institution.
Peace of Mind. Using the CDARS service, you can access multi-million-dollar FDIC insurance on CD investments.
One Relationship. You work directly with a local CDARS Network member – a financial institution you know and trust.
One Rate. You negotiate one interest rate per maturity on CD investments placed through CDARS. With CDARS, there is no need to negotiate multiple rates or manually tally disbursements for each CD.
One Statement. You receive one regular statement detailing your CD investments. You no longer need to manually consolidate statements at the end of each month, quarter, or year.
No Hidden Fees. You will not be charged annual fees, subscription fees, or transaction fees for using CDARS. The rate you see is the rate you get.
No Ongoing Collateralization. Because CDARS deposits are eligible for FDIC protection, you may not need to continually collateralize your deposits. This can eliminate the time-consuming task of tracking changing collateral values on a recurring basis.
A Wide Variety of Maturities. You can select from various maturities – ranging from 4 weeks to 260 weeks (5 years) – and choose the terms that best suit your investment needs.
Community Investment. Your funds can support lending initiatives, including special development projects that strengthen your local community. Bank of America, Chase, Citibank, and Wells Fargo don’t participate in CDARS (they still think they’re too big to fail).
CDARS received very positive reviews in a March 8 Standard and Poor’s Credit FAQ piece entitled, “What Effect Will The Certificate Of Deposit Accounts Registry Service Program Have On Fund Ratings?” In the report, Standard and Poor’s stated that, from a credit perspective, it deems CDs issued through CDARS to be “AAA/A-1+” equivalent.