CDs, Investing & Retiring

CDARS may sound like trees you might find in the FREST – but it actually stands for Certificate of Deposit Accounts Registry Service, a method of insurance for very large deposits that is backed by the Federal Deposit Insurance Corporation (FDIC).

CDARS exists primarily because of the limits on FDIC-insured accounts. FDIC limits for CDs are, per the FDIC website, “$250,000 per depositor, per insured bank, for each account ownership category.” If you have a larger quantity of funds that you wish to invest in CDs, you can still do so and maintain FDIC insurance – but you will have to go to each bank, open individual accounts, and then manage all of them. CDARS institutions act as intermediaries and handle this step for you.

To take advantage of this, you choose a CDARS institution from the network list available on the CDARS website to be your “relationship institution” – for most Americans, it is likely that one is near your location. The CDARS website contains a U.S. map with links to CDARS institutions by state.

A Deposit Placement Agreement is signed making your relationship institution the custodian of your deposited funds; then, the relationship institution places your funds in other institutions throughout the CDARS Network in increments of $250,000 or less in order to retain FDIC insurance. Your relationship institution does not issue the CDs, but does send you the consolidated interest payments and statements. This provides the convenience of one simple account and rate to manage.

Rates are comparable to market CDs as well as Treasury issues, and terms are available from a minimum of four weeks to a maximum of five years. Rate quotes are available through the individual institutions.

CDARS are not just available for individual investors. Corporations, non-profits, foundations, endowments and other groups with sufficient funding can take advantage of this as well. This program can be especially valuable to managers of public funds such as pensions, utilities, school districts, and fire and police departments.

You need to coordinate with your relationship institution if you are investing funds other than your own. There may be state regulations and overall restrictions that govern what you can and cannot do with these funds, and as the depositor, you are responsible for verifying that all of the deposits satisfy those restrictions. Click on the CDARS website’s public funds map for links to state law to see which public funds limitations, if any, may apply.

Another advantage of CDARS for non-individual investors is eliminating the need to collateralize. Without FDIC insurance, your investments would need to be collateralized (secured by collateral) as protection against a potential bank collapse. You must keep track of changes in the values of the collateral over time, which can take up significant resources.

CDARS are also a useful method to direct funds toward assisting development in underserved areas. You can direct vital capital toward certain Community Development Financial Institutions (CDFIs) that focus on areas in economic distress. That capital can be used for expanding businesses and improving housing options, among other things – while you are provided with interest rates comparable to CDs and FDIC insurance.

For those who need to make relatively safe investments in the millions of dollars, the CDARS Network allows you to retain the safety of FDIC insurance with a much higher degree of convenience and comparable rates – and potentially direct the capital toward distressed areas where it can be used for development projects. The combination of safety, convenience, reasonable yields, and socially responsible investments is hard to beat.

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