How to Safely Exceed FDIC Limits

To keep local banks from suffering from the flight of municipal deposits, the CDARS Reciprocal Service directs deposits from other CDARS participating banks back to the originating bank in an amount equal to the original municipal deposit.

Fees

Depositors using CDARS aren't charged fees to open accounts. Participating banks pay a fee to join CDARS and pay transaction fees to Promontory Interfinancial depending on the size of the deposit.

Like most CD deposits, there are penalties for early withdrawals. For early withdrawals from CDs with maturities of up to 26 weeks, the depositor's penalty is the interest for the entire period of the CD. For longer-term CDs, early-withdrawal penalties are generally the interest for half the CD term.

Promontory Interfinancial Network's co-founder and chairman is Gene Ludwig, former comptroller of the currency. More detailed information on which institutions offer CDARS and other details can be found at CDARS' Web site.

Bottom Line

In this financial environment, you can't be too careful with your cash. Even though most depositors have been aware of the risks of bank failures for some time, there were more than $500 million in losses to depositors with uninsured balances when IndyMac Bank failed and was taken over by the FDIC. The CDARS service helps you sleep better at night and is catching on. Transaction volume in dollar terms has risen four-fold from a year ago, Promontory Interfinancial's Battey said.

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