What is CDARS?

CDARS is an acronym for Certificate of Deposit Account Registry Service®. With CDARS, an individual, non-profit organization, municipality, or business can work with their primary financial institution to invest in Certificates of Deposit (CDs) held by a network of qualified Federal Deposit Insurance Corporation (FDIC)-insured banking institutions to have full FDIC coverage on balances that are larger than the standard coverage limit.

FDIC is part of the Banking Act of 1933, which was signed into law after The Great Depression. The standard FDIC deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. FDIC deposit insurance covers certain deposit products such as checking and savings accounts, money market deposit accounts, and certificates of deposit (CDs). FDIC ownership categories include single accounts, certain retirement accounts, employee benefit accounts, joint accounts, trust accounts, business accounts, and government accounts.

Under the standard FDIC deposit insurance coverage limit and before CDARS came about, an individual or business depositor could be faced with monitoring rates and maintaining relationships and accounts with multiple financial institutions to remain within the coverage limits. CDARS deposit placement service streamlines the process for depositors.

How does CDARS work?

With CDARS, large depositors can maintain FDIC insured multi-million-dollar CD balances through a single financial institution. Deposits that exceed the FDIC coverage amount are distributed through the CDARS network to other qualified, participating institutions to allow for full FDIC coverage of the balance. CDARS network financial institutions set the CD rates that they offer, which are usually competitively priced for their market. During the setup process, you will have to provide a list of financial institutions where you currently have accounts.

Your primary financial institution acts as custodian for your CDARS deposits. Funds deposited for placement in a CDARS CD are divided into amounts below the FDIC coverage maximum and placed in CDs at other CDARS network institutions. Working directly with your primary FDIC-insured financial institution, you can get FDIC coverage for your funds through many other institutions.

When your financial institution sends money out to CDARS network institutions, other CDARS network institutions send the same amount of money to your bank as a network participant. CDARS network members reciprocate deposits on a dollar-for-dollar basis, ensuring that the same amount of funds placed through the network are returned to your financial institution and your bank can continue to locally support the growth of your community.

What are the benefits of CDARS?

CDARS offer depositors a streamlined approach to holding FDIC-insured CD balances at multiple financial institutions.

• Individual depositors can work with one financial institution and don’t need to seek out and establish multiple banking relationships to have FDIC coverage for balances more than the FDIC limits.
• CDs have a fixed interest rate which is set at account opening and you will know what the account will be at maturity.
• CDARS can be a safer option for investors who want to protect their funds and continue to earn interest rates usually only possible with CDs.
• Investing in CDARS offers an alternative to investing in U.S. Treasuries. Like Treasuries, CDARS CDs are backed by the U.S. government.

Are there drawbacks to CDARS?

The funds deposited through CDARS are placed in certificates of deposit (CDs). CDs have several characteristics and rules, and the CDARS program has some traits that a depositor might want to consider.

• CDs have a fixed interest rate that is set at account opening, which can be a drawback if market rates increase during the term of the CD.
• CDs have maturity dates that are set at account opening which can make them less liquid than other types of accounts. If the money is withdrawn before the maturity date, you will have to pay a penalty.
• Maturity date options available for CDARS investments may be limited. Depending upon liquidity needs and the maturities available, the timing could be prohibitive for some businesses or individuals.
• Banks pay a set fee for access to the CDS in CDARS. This could reduce the returns on investment compared to other lower cost alternatives.

The information contained in this article should not be construed as financial, legal or tax advice, and may not be reflective of terms and features currently offered by Enterprise Bank. Please contact us for details on current product offerings and rates.

Deposit placement through CDARS or ICS is subject to the terms, conditions, and disclosures in applicable agreements. Although deposits are placed in increments that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”) at any one destination bank, a depositor’s balances at the institution that places deposits may exceed the SMDIA (e.g., before settlement for deposits or after settlement for withdrawals) or be uninsured (if the placing institution is not an insured bank). The depositor must make any necessary arrangements to protect such balances consistent with applicable law and must determine whether placement through CDARS or ICS satisfies any restrictions on its deposits. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. The depositor may exclude banks from eligibility to receive its funds.

To learn about products and services offered by Enterprise Bank including CDs and CDARS, please visit https://www.enterprisebanking.com. If you would like to speak to an Enterprise Banker about opening an account, we invite you to call us at 877-671-2265 or visit one of our convenient branch locations.