Not too long ago, I wrote a post about FDIC insurance and how it protects your money in the bank. Unfortunately, there are limits on the protection. Large deposits — in something like a CD — of more than $100,000 are not insured. Which means that you could lose money in accounts that have more than the limit.
There are tools, though, to remedy this problem. A program called CDARS is in place now to help make spreading your large amounts of capital amongst CDs easier. BusinessWeek describes how the program works:
Customers choose a bank in the network (listed at www.cdars.com)
as their “home base.” They can choose between CD maturities ranging
from four weeks to five years. A single rate of interest set by the
home bank applies to the entire portfolio, and customers get one
statement from their home bank that lists each holding.
Thanks to recent worries over failing banks, more people are beginning to wonder how they can make their money safer. While you could pull your money out of a bank, this means you lose out on the interest the money could make. And with Social Security and company pensions drying up, the truth is that you need your money to work for you, yielding interest.
CDARS seems like a good way to keep your money in the bank, without having to run from institution to institution, opening different CDs and putting up with the hassle. One of the issues, though, is that if your “home bank” fails, you may be delayed in accessing money from your total deposit, even though the money is spread out. You still get all of your money back, but it may take longer. With separate CDs, opened individually, this isn’t an issue.
Of course, CDARS is only useful for those who want to put large amounts of capital in CDs. For those who prefer more flexible and liquid ways of accessing their savings, money market accounts and some mutual funds can be considered.