What Is the CDARS?

A for-profit service run by the Promontory Interfinancial Network, the Certificate of Deposit Account Registry Service (CDARS) allows investors to purchase certificates of deposit (CDs) across a network of multiple banks in order to access FDIC insurance beyond the $250,000 single-institution limit.

How Does the CDARS Work?

When investors are looking to make a CD purchase that exceeds the limit, the bank they are using will employ the CDARS system in order to locate multiple CDs that can accommodate the customer’s needs.

CD investors that try to manage the risk of exceeding FDIC limits often purchase CDs across different banks in their local markets. The CDARS service eliminates the need to do that. It also vastly expands savers’ options, as the CDARS network includes over 3,000 banks and savings institutions. As banks pay a fee to participate in this network, any associated costs are, naturally, passed through to customers.

How to Use the CDARS (With Example)

Suppose you have $3 million you are planning to put into certificates of deposit. However, $3 million exceeds the FDIC coverage limit of $250,000. Your bank, however, happens to be a member of the CDARS network.

You deposit the funds in your checking account. Your banker has you sign a CDARS deposit placement agreement. Your account is debited, and your funds are placed accordingly (not to exceed FDIC limits at each institution) using the CDARS service. Your CDs are issued by the various member banks in the network, and you receive a confirmation of the purchase of your CDs from your bank.

Your consolidated interest payments will be credited to your bank account, and you will receive a consolidated statement from your bank showing the value of the different CDs you own.

What Is the Difference Between CDARS and ICS?

Managed by the same for profit entity, Promontory Interfinancial Network, ICS or Insured Cash Sweep works much like the CDARS system in that it spreads large deposits across multiple, participating institutions in order to maintain maximum FDIC coverage. However, where CDARS places funds in certificates of deposit (time deposits), ICS funds are insured money market (short-term) deposit accounts.

The placement process is the same: the customer signs the ICS deposit placement agreement, with funds then deposited to different institutions. However, where CD owners receive confirmation on the purchase of their CDs, ICS customers are given access to an online tool to check their ICS activity and balances. Since ICS are money market funds, funds are liquid and more readily available, unlike CDs which are locked into a specific term. Like the CDARS process, though, ICS customers receive a monthly consolidated statement showing all balances and activity.

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