After the collapse of IndyMac (NDE) and Bear Stearns (BSC), everyone is wondering if their money is safe. I have been hearing a lot of people warning their friends and family that they should keep no more than $100,000, the limit of FDIC insurance, at any one bank.
My colleague Boris Schlossberg shared this great article with me that I think everyone should read:
An easy way to beat the $100,000 FDIC limit without having accounts at 20 different banks may be to invest them in Certificate of Deposit Account Registry Service or CDARS, pronounced “cedars.”
According to Bankrate.com, here is 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.”
Make sure you read the entire article on (CDARS)!
**This is in no way an endorsement of CDARS. Make sure you do research on the products