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Thursday, February 26, 2009

CDARS: Certificate of Deposit Account Registry Service

CDARS are for lazy investors. CDARS stands for Certificate of Deposit Account Registry Service. Bob Brinker talked about them on his radio show as a way to get around the FDIC minimum.

Here is how they work. Let's say you have $1 million to invest in FDIC-insured certificates of deposit. Today the FDIC insures $250,000 per member institution. If you go to a local bank that participates in CDARS, they can put $250,000 of your money in one of their certificates of deposit you like. Then the CDARS service spreads the remaingin $750,000 between various FDIC-insured banks all over the country, hopfully at a good rate.

What is the catch?

Of course there is ALWAYS a catch on Wall Street. Catches on Wall Street come in the form of added fees! They get the fees by paying you a lower interest rate on the money they invest elsewhere for saving you the time of finding other banks yourself!

Here's an example given by Larry Nusbaum yesterday.
Gibraltar Private Bank & Trust of New York will pay 2.60% on a one-year FDIC-insured certificate of deposit in their bank. If you give them $1 million to invest through CDARS, they will pay you 2%. That means paying them $6,000 a year for the privilege of saving you an hour or two of calling other banks. I am not impressed.
You are much better off surveying the banks yourself and using the money you save on CDARS fees to compensate you for your effort.

The top rates for CDs this week are at Pentagon Federal Credit Union (fondly known as PenFed CU) for 5 and 7-year certificates of deposit that currently pay 4.39% APY.

For shorter term, Corus Bank has a 1-year CD with a 2.93% annual percentage rate.

For online savings, GMAC Bank is paying 2.75% on any deposit over $500.

With rates so low, banks will try to sell you their annuity products. Make sure you read my article "Beware of Annuities."

The table below shows the best CD rates for other terms. If that table is hard to read, then try Very Best CD Rates.

"Highest CD Rate Survey + Current US Treasury Rates"
Rate (APY)
(Click link for Full Rate Sheets)
Daily Savings
Vanguard Prime Money Market Fund
Tax Exempt
2/24/09 0.77%
Vanguard Tax Exempt Money Market Fund
Online Savings 2/24/09 2.75%
GMAC Bank & 2.25% @ HSBC Bank
3-Month Treasury
2/24/09 0.30%
US Treasury Rates at a glance
6 Months 2/24/09 2.60%
6-Month Treasury
US Treasury Rates at a glance
9 Months 2/24/09 2.75%
1 Year
2/24/09 2.93%
Corus Bank 2.90% @ GMAC Bank
1 Year Treasury 2/24/09 0.70%
US Treasury Rates at a glance
18 Months 2/24/09 2.90%
Intervest Bank & UmbrellaBank
2 Years
2/24/09 3.00% UmbrellaBank & 2.95% @ GMAC Bank
2 Year Treasury 2/24/09 0.98%
US Treasury Rates at a glance
3 Years 2/24/09 3.40% Flagstar Bank
3-Yr Treasury
US Treasury Rates at a glance
4 Years
2/24/09 4.15% PenFed Credit Union
5 Years
2/24/09 4.39% Pentagon Federal CU
5 Yr Treasury
US Treasury Rates at a glance
7 Years 2/24/09 4.39% Pentagon Federal CU & 3.50% @ Discover Bank
10 Yr Treasury
2/24/09 2.80%
US Treasury Rates at a glance
10 Years 2/24/09 3.50%
Discover Bank
30 Yr Treasury 2/24/09 3.50%
US Treasury Rates at a glance

With rates so low, banks will try to sell you their annuity products. Make sure you read our article: Beware of Annuities

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