ost consumers are aware provides this service. It has
of the current problems been available for over five
that some financial years and nearly 1,800 banks and
institutions are experiencing. thrifts in all 50 states offer
This has caused some concern for the service. The service allows
large investors, those with CD CD depositors with balances of up
investments over the maximum to $50 million to have their
amount that is covered by the entire balances insured by the
Federal Deposit Insurance FDIC.
Corporation. Currently, the
Let's look at how this works.
maximum allowed is $100,000 per In this example, the investor has
account. a $1 million CD.
The simple answer to this problem
The investor would go a
is to spread your certificate of participating bank which is
deposit money into various called the lead bank, and fill
accounts at various institutions out an account application, along
with each account not exceeding with a CDARS agreement. Once this
the limit. This is completely is completed, the lead bank would
legal and many investors are then act as the account custodian
doing just that. However, keeping and, through the CDARS program it
money in several locations can would spread the deposit to over
cause bookkeeping problems. There 11 FDIC-insured institutions,
is another way of doing this can making sure that each has less
be far easier. A somewhat new than $100,000.
service, the Certificate of
The lead bank would then give
Deposit Account Registry Service, the investor a single account
or CDARS, can do this work for number along with a single
you.
account statement that details
Promontory Interfinancial which institutions are securing
Network is the company that the money. The investor would
also get one 1099 statement for there are penalties for early
taxes, or other relevant tax withdrawals. The penalties vary.
statements for IRA accounts, thus The most severe are for early
making bookkeeping much withdrawals from CD's that have
easier. maturities of up to 26 weeks. For
In addition, the Bank of New these, the penalty is the
York, a unit of Bank of New York interest for the entire period of
Mellon, acts as the sub-custodian the CD. For longer-term CD's,
for the CD account, which means early-withdrawal penalties are
that the only place that has your generally the interest for half
personal information is the lead the CD term but these may vary so
bank that you started with.
investors should ask before
CD's are currently available withdrawing.
for terms from four weeks to five
You can learn more about CDARS
years. Interest payments can be by visiting their website or
made monthly, quarterly, talking with a participating bank
semiannually, annually or at or saving and loan
maturity.
institution.
Investors using CDARS are not
charged fees to open accounts.
the investor. Just like most align="center">
other certificates of deposit,
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Article Tags: account, bank, cdars
