I was researching the best savings account for large sums of money recently and came across a neat way to save a good amount of cash and still benefit from a Federal insurance program such as the FDIC insurance coverage. This alternative appears to be the best savings account for high net worth individuals, one that does not have a cap on the FDIC insurance limit.
I don’t have personal experience with this method of saving yet, but I’d like to share what I have learned from researching this topic over the last couple weeks.
In the USA, Federal Deposit Insurance Corporation (FDIC) insurance coverage is the Government’s promise to insure your savings deposits in financial institutions.
Many countries have similar arrangements, such as that of the Reserve Bank of India (RBI) over deposits in Indian banks.
During the global economic crisis of 2008, the Federal Government of the United States increased its FDIC coverage from $100,000 to up to $250,000 (which may change in the future).
While this limit is sufficient to cover the majority of savers, there are some savers who have a lot more money who are looking for a safe haven. So where can these savers put their money while resting assured their monies are safe?
CDARS, the Certificate of Deposit Account Registry Service, is a program that “provides a convenient way for safety conscious investors to access FDIC insurance on multi-million dollar deposits”. Intriguing.
Not everyone has the appetite to invest in non risk free investments. Not everyone wants all their money to be exposed to risk in the stock market. The CDARS initiative appears perfect for these types of individuals.
Whereas many financial planners will tell you to establish multiple accounts in multiple banks to spread risk and maximize FDIC coverage, this approach can be laborious and leave you with multiple accounts to maintain, relationships to manage, interest rates to contemplate and maturity dates to dance around.
CDARS doesn’t sound so bad if you want to avoid all those headaches. CDARS is a program put together by ex top banking executives, and has over 3,000 participating banks and financial institutions. When you keep your money with a CDARS participating bank, your monies are distributed across member banks so that no one bank has more than a certain percentage of your money.
This program was initially meant for Governments, Non Profits, Corporations and other entities interested in capital preservation. In recent years, this option has opened up to individuals as well, so long as you have over $100,000 to deposit. On the surface at least, this appears to be the best savings account for large sums of money so far.
When you save your money as part of the CDARS program, you have one bank to deal with (the one where you open your account). In addition, you have one interest rate and one maturity date to manage. I have not used the service myself yet, but from preliminary discussions with their corporate representatives, I have learned out that interest rates are higher than market rates, but certainly not as high as some risk free saving mechanisms overseas.
For someone looking to keep their monies state side however, I am starting to wonder whether a vehicle like CDARS is the best savings account alternative?
Have you heard of CDARS? Do you have any personal experience / exposure to how it works? Would you ever consider something like CDARS? How do you obtain maximum insurance protection over your deposits in banks?
I have no personal experience saving with CDARS. I recommend conducting your own due diligence prior to considering their services.Previous: Different Types of Insurance for Small Businesses