New service offers FDIC coverage up to $5M

By Eileen Alt Powell
Associated Press

•	On the Web: In Hawai'i City Bank and Hawaii National Bank offer CDARS. For more information, see www.cdars.com

It happens when people sell their homes, or inherit money from a relative, or get a large insurance settlement or take a lump-sum retirement payout or win a lottery.

A new company, founded last year by former government regulators, now is making it possible for consumers to get full Federal Deposit Insurance Corp. coverage on deposits of up to $5 million.

The Promontory Interfinancial Network, based in Arlington, Va., is doing it through a program it calls the Certificate of Deposit Account Registry Service, also known as CDARS and pronounced like the word "cedars."

Banks that sign up for the program — so far 600 have — basically swap money using Promontory's matchmaking computer service. As a result, a consumer's deposit of $250,000 at one bank is divvied up among three financial institutions, with each account eligible for the maximum FDIC protection.

"It's beneficial for consumers, because they get the coverage they want," said Don Ogilvie, president of the American Bankers Association. "And it's good for banks, because they can attract and hold new deposits."

The FDIC has affirmed that the accounts qualify for federal protection, saying in a letter to a California institution that "deposits placed through the CDARS system would be insured on a pass-through basis under the FDIC's rules."

Insurance coverage is important because if a bank fails, the insured depositors get all of their money back. Those without protection can lose some — or all — of their savings. In the more than 30 bank failures over the past five years, some $255 million in deposits were uninsured, according to FDIC statistics.

James L. Smith, a vice president at Premier Bank in Jefferson City, Mo., said CDARS has been a boon to the bank and its customers. Its customers include associations whose bylaws require that they be fully FDIC insured, as well as consumers who wish to deal with a single bank in making large deposits.

Cheri Davis, 46, of New Bloomfield, Mo., found the service made a difference when she became the caretaker for a family inheritance.

"I thought I was going to have to put it in several banks until I learned about CDARS," Davis said. "It's so much easier than running around and taking care of accounts at different banks."

Premier Bank set the rate on the certificates of deposit that she bought, and she gets a single statement every month that details where the CDs are and how much they've earned.

The founders of Promontory include Eugene A. Ludwig, a former U.S. Comptroller of the Currency; Alan S. Blinder, a former vice chairman of the Federal Reserve, and Mark P. Jacobsen, former chief of staff at the FDIC.

Ludwig, chairman and chief executive, recalled watching his aunt, a survivor of the Great Depression, take her retirement savings "and go around Philadelphia, bank to bank to bank" making small deposits to ensure it was all federally insured.

With CDARS, he said, "we're going to do the running for you."