So what about CDARS? They are FDIC-insured CD's up to $50Million

[Dover]

Apparently they are a new thing. Anyone have some good info on them? What's the catch?

Welcome to CDARS

CDARS® is the Certificate of Deposit Account Registry Service®. And it's the most convenient way to enjoy full FDIC insurance on deposits of up to $50 million. With CDARS, you sign one agreement with a participating local bank or other financial institution of your choice, earn one interest rate, and receive one regular statement. It's that easy.


CDARS is the perfect solution for many depositors — from non-profits and public funds to businesses, advisors (including trustees, CPAs, financial planners and lawyers) and individuals, as well as socially-motivated investors.


You've worked hard for your money. Now let it work hard for you. See for yourself
http://www.cdars.com/index.php

---------

CDARS: Beat the $100,000 FDIC limit
By Laura Bruce • Bankrate.com



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...cont'd

http://www.bankrate.com/brm/news/sav/20030820a1.asp

====

4000 - FDIC Advisory Opinions


Do "pass-through" deposit insurance rules apply to funds placed in the "Certificate of Deposit Account Registry Service"
FDIC--03-03 July 29, 2003 Joseph A. DiNuzzo, Counsel


This is in response to your request for an opinion on the FDIC deposit insurance coverage available for deposits purchased through a program sponsored by Promontory Interfinancial Network ("Network"). Entitled the "Certificate of Deposit Account Registry Service" ("CDARS"), the program is a deposit-placement service designed to allow FDIC-insured depository institutions to accept deposits of more than $100,000 and obtain full coverage for the depositor by spreading the funds among as many separate FDIC insured institutions as necessary so that no institution holds more than $100,000 (principal plus interest) for each depositor. Your view is that FDIC insurance would apply to all deposits placed through the CDARS program, assuming the program is operated as indicated in the materials enclosed with your letter.

The applicable materials you provided to us are marked "02/03 Version." The "Participating Institution Agreement" defines a Participating Institution as an institution participating in the CDARS program and indicates that a Participating institution may act from time to time in one or three capacities: a Relationship Institution--an institution that submits its depositors' funds for placement through CDARS and acts as custodian with respect to its depositors certificates of deposit ("CDs"); and Issuing Institution--an institution that issues CDs to depositors for funds placed with the Participating Institution through CDARS; and a Surplus Institution--an institution that on an order date is willing to accept time deposits in excess of the funds, if any, it has submitted for placement through CDARS on that order date.

"The CDARS Deposit Placement Agreement" provides the terms and conditions upon which the Relationship Institution will place a depositor's funds with other FDIC-insured institutions (Issuing Institutions) that have entered into similar contracts with the Network. The agreement states that the Relationship Institution will act as the depositor's agent in placing funds in CDs with the Issuing Institutions. It indicates that: the Relationship Institution will act as the depositor's custodian with respect to the CDs and has entered into an agreement with The Bank of New York ("BNY") to act as the Relationship Institution's sub-custodian with respect to the CDs for which the Relationship Institution is acting as the depositor's custodian; each CD for which the Relationship Institution is acting as the depositor's custodian will be recorded on the Issuing Institution's records in the name of the sub-custodian, BNY; the CD will be recorded on BNY's records in the Relationship Institution's name; and the CD will be recorded on the Relationship Institution's records in the depositor's name.
The Participating Institution Agreement contains these relevant disclosure and recordkeeping provisions:

Section 9.01 Recordkeeping for FDIC Purposes
As custodian for your Depositors, you will maintain, in accordance with applicable published requirements of the FDIC, a record of (i) the name, address, taxpayer identification number, and amount of the account of each Depositor for which CDs have been issued through CDARS and (ii) any representative capacity in which the Depositor may be acting.

Section 9.04 Recordation of CDs
Each CD that you issue will be established on your deposit account records in the name of ", acting as agent for itself and others, each acting for itself and others," or in such other manner of recordation as may be approved {{12-31-03 p.4984.77}}from time to time by the FDIC to permit "pass-through" of deposit insurance to the beneficial owner of the CD.

cont'd

http://www.fdic.gov/regulations/laws/rules/4000-10220.html


-------

Insuring More Than $100,000

FDIC coverage is limited to $100,000 at each bank per named single nonqualified account. So, typically an individual with $1 million in CDs would either need to go insurance-naked on $900,000 or open accounts at ten different banks. But now ONE bank account can provide FDIC coverage on the whole million if the bank uses CDARS.

The Certificate of Deposit Account Registry Service, or CDARS, uses a network of banks across the country to provide the additional FDIC coverage needed.

How does it work?

The way it works is every dollar over the $100,000 coverage limit is placed in another bank and that bank deposits an equal amount of money in the first bank. So, if a consumer had $180,000 the first bank might retain $95,000 (to keep under the $100,000 limit after earning next year's interest) and put the remaining $85,000 in the second bank. Since the consumer now has less than $100,000 at each bank the entire $180,000 is FDIC insured. The second bank would then deposit $85,000 from a different customer's account back to the first bank to balance up the books. If the consumer had $280,000 three banks would be used, and that individual with $1 million would have their money on deposit at ten different banks.

But all of this is done behind the curtain. What the depositor sees is one account at their bank with one account number and the depositor gets one Form 1099-INT for interest at tax time. Using CDARS as much as $50 million can be covered.

Who is CDARS?

The program is managed by Promontory Interfinancial Network, LLC. <1515 North Courthouse Road, Suite 800, Arlington,VA 22201, 866-776-6426>. Although they have only been around a few years they boast a heavyweight board and management team that includes as their CEO former Comptroller of the Currency Eugene Ludwig.

What's the catch?

The catch is the bank will take a little more off the yield paid to the consumer to cover the extra costs of the CDARS program. However, because of the national network of over 600 banks used the consumer could still wind up earning more with CDARS than if they left all the money in their local bank.

Another point is CDARS network banks tend to be small or medium sized financial institutions, the vast majority of the banks are not affiliated. But it might get your banker's attention if you threaten to withdraw your "mega CD" unless they provide CDARS.

CDARS had been endorsed by American Bankers Association. More information is available at their web site www.cdars.com


http://www.safemoneyplaces.com/fdic.htm

[Dover]

1. Article: A Wake Up Call To Savers (MarketWatch)

LOS ANGELES (MarketWatch) -- On Monday morning, traffic on Ventura Boulevard was totally stalled as far as three blocks west of the Encino, Calif., IndyMac branch.
Slowly, as the cars came in view of the bank, drivers realized why traffic wasn't moving. Just like the scene of an auto accident, looky-loos were gawking at the line of people stretched to the end of the block, with two police officers at the head of the line.

You've heard that the Feds have taken over IndyMac, which is now a federal bank. You've heard assurances that all insured deposits are covered, along with 50% of the uninsured deposits.
And, regarding the uninsured deposits, you may have heard FDIC spokesman David Barr on the radio telling people that if they have a loan plus uninsured money at the bank, the uninsured funds can be used to repay all or a portion of the loan.

But who cares about IndyMac -- my money is at a different bank!
Hold on there. If you are sitting on deposits of over $100,000 at any bank, you are at risk.
Do you have too much money in the bank? Don't panic. You don't need to start running around, shopping for a dozen banks to hold your money. At least, not yet.

Get some answers
First, find out if your bank carries additional insurance. The great news for folks in Massachusetts is that all state chartered savings banks are required to carry additional coverage through the Depositors Insurance Fund. DIF covers all deposits over the FDIC limits, so depositors don't have to do a thing. See this page for more information.
That's great for Massachusetts residents. What about the rest of us?
It turns out there is no national insurance program for all banks. However, there is an interesting alternative. It's called the Certificate of Deposit Account Registry Service, or CDARS. See this page for more information.

If your bank participates in the program, you can have up to $50 million dollars in Certificates of Deposit and still have full FDIC coverage for your funds. ..cont'd

http://www.marketwatch.com/news/story/there-insurance-beyond-fdic---/story.aspx?guid=%7b03F510FC-EF7D-4ED8-B94E-7CB0D526BA85%7d&dist=msr_1&print=true&dist=printMidSection

[Dover]

2. Why aren't the really big banks participants in CDARS?

I was looking at the list of participating banks for my state at the cdars.com site and noticed an absense of some of the bigger banks. Why would that be?

[wishlist]

3. I'll bet the interest rate is considerably lower

This is the first time I have heard of this program. It must pay considerably lower interest and aim for the very wealthy. I checked out the CDARS website and found out that my primary bank participates but they have never mentioned CDARS to me as an option even though they are well aware that myself, spouse and our parents have drawn out sizeable CDs to get higher interest elsewhere. We haven't mentioned that we also have been slightly over the regular FDIC limit from time to time and needed to shift money elsewhere. My guess is that they know CDARS pays significantly lower interest than they offer on regular CD's so unless you have way over $100,000 per account they know you can get higher rates on regular insured CD's elsewhere rather than through CDARS.