CDARS Featured

7:00pm EDT January 29, 2008

The bank failures in the 1930s may be hard to remember for some today, but the failures of savings and loans and banks in the 1980s are not. Unsuspecting depositors were left with losses on accounts above the insured limits.

But today, there’s actually a way to safeguard against that. It’s called the Certificate of Deposit Account Registry Service (CDARS®), a network of 1,733 banks that allows a single client to insure up to $50 million in CD deposits by distributing them throughout the network.

Smart Business spoke with MB Financial Bank Vice President Paula Sheffield about what advantages a commercial client can experience through using CDARS.

What is CDARS?

CDARS stands for the Certificate of Deposit Account Registry Service. It’s a computerized process that allows a company’s large CD deposit to be distributed among multiple banks in amounts below the insured limit, therefore ensuring that all the money is insured by the FDIC. The FDIC doesn’t guarantee accounts over $100,000, so anything under that limit per bank would be insured.

As opposed to going around town to open accounts in multiple banks, everything is done by computer. Plus, the client receives one statement and one rate on all of its CDs. The client only has to deal with one bank, and that makes the whole process more convenient because it avoids the hassle of opening and tracking multiple accounts.

The CDARS network includes 1,733 banks, which allows it to insure up to $50 million in CD deposits per person by distributing them throughout the network. It was started by a company called Promontory Interfinancial Network, which was founded by Eugene Ludwig, former comptroller of the currency and current company chairman. The vice chairman is Alan Blinder, former vice chairman of the Federal Reserve. The president of the company, Mark Jacobsen, is a former FDIC chief of staff.

What are the maturity options?

A client’s CD can be opened in maturities ranging from four weeks, 13 weeks, 26 weeks, one year, two years and three years. Four weeks is pretty liquid, so even if a client needs the money soon, it doesn’t have to wait too long. But if a client breaks out of any of the sub-CDs, the penalties are steep. The client would lose all of the interest it would have earned on a four-week or 13-week CD. For CDs with longer duration, it would lose half of the interest it would have earned.

No matter how the money is spread throughout the network, all the CDs bear the same maturity date and rate. And the client receives one regular statement detailing the balances of all the individual CD accounts and interest earned.

How does CDARS work?

Let’s say a client has $5 million to deposit in the bank. If the client’s bank is part of the CDARS network, it will use the network to distribute portions of the cash — maybe in 60 smaller chunks to stay under the insured limit per bank of $100,000 — to other bank members of the network, saving the client the time to open different accounts at different banks.

Every time the bank purchases a CD for the client, the other banks in the network simultaneously deposit precisely the same amount back into the client’s main bank in separate accounts, where it will fall under the $100,000 insurance limits. The money never really leaves the client’s main bank, but now it’s all insured.

Are there any fees the depositor has to pay for the service?

Banks pay a one-time fee based on their size to join the network and a small fee for each CDARS transaction. The client does not pay any fees. The CD rate offered by the initial depositing bank is the same CD rate received by the client, no matter where the smaller segments of money are deposited.

Banks participate in the network because having the ability to distribute the insured deposits allows them to attract larger deposits, retain them and keep important customer relationships intact.

Who are members of CDARS network?

Go to and click on ‘Where to Find CDARS’ for a state locator.

PAULA SHEFFIELD is vice president of MB Financial Bank in Chicago. Reach her at (847) 653-2403 or