CDARS Accounts for Large Cash Deposit Accounts

By Brian Starr, Attorney

July 2010

If you ever have a large amount of cash (such as $1 million or more) to hold on behalf of a client, one option is to open a CDARS® (short for Certificate of Deposit Account Registry Service) account. This is particularly useful if you need to maintain a large amount of cash to pay for estate or other taxes. The following information is from material received from The Biltmore Bank of Arizona.

The CDARS program offers the following benefits to persons who want to combine the security of access to FDIC insurance with the convenience of working with just one financial institution.

Peace of Mind. Using the CDARS service, you can access multi-million-dollar FDIC insurance on CD investments.

One Relationship. You work directly with a local CDARS Network member - a financial institution you know and trust.

One Rate. You negotiate one interest rate per maturity on CD investments placed through CDARS. With CDARS, there is no need to negotiate multiple rates or manually tally disbursements for each CD.

One Statement. You receive one regular statement detailing your CD investments. You no longer need to manually consolidate statements at the end of each month, quarter, or year.

No Hidden Fees. You will not be charged annual fees, subscription fees, or transaction fees for using CDARS.

No Ongoing Collateralization. Because CDARS deposits are eligible for FDIC protection, you may not need to continually collateralize your deposits. This can eliminate the time-consuming task of tracking changing collateral values on a recurring basis.

A Wide Variety of Maturities. You can select from various maturities - ranging from 4 weeks to 260 weeks (5 years) - and choose the terms that best suit your investment needs.

CDARS received very positive reviews in a March 8, 2010 Standard and Poor's Credit FAQ piece entitled, "What Effect Will The Certificate Of Deposit Accounts Registry Service Program Have On Fund Ratings?" In the report, Standard and Poor's stated that, from a credit perspective, it deems CDs issued through CDARS to be "AAA/A-1+" equivalent. Excerpts from the report are available at http://www.cranedata.com/archives/all-articles/2757/ .

Everything is handled through a CDARS® Network member of your choice. Financial institutions that can offer CDARS are members of a unique network. When you place a large deposit with a CDARS Network member, that institution uses the CDARS service to place your funds into CDs issued by other members of the CDARS Network. This occurs in increments below the standard FDIC insurance maximum so that both principal and interest are eligible for full FDIC insurance. By working directly with just one institution, you can receive insurance coverage from many. And, you receive just one regular consolidated account statement.

For more information and to find a bank that participates in the CDARS program, go to www.cdars.com.

Disclaimer: The information contained in this article is made available for general informational purposes only, and is not intended to constitute specific legal advice or to be a substitute for advice from qualified counsel. For that reason, you should not act or refrain from acting based on any information in this article without first obtaining advice from professional counsel qualified in the applicable subject matter and jurisdictions.