Comparing CDARS with DollarSavingsDirect's CD

As I mentioned in a recent post, DollarSavingsDirect has a decent deal on its 16-month internet CD. The rate is currently 1.65% APY. It's not the best rate for terms between 12 and 18 months, but it is competitive these days. There's also an advantage for those with savings over the basic FDIC limit of $250,000. DollarSavingsDirect can open this CD in any one of its five Emigrant Banks in New York. Each has its own FDIC charter so each would be treated as a separate bank from a deposit insurance point of view. This is described in the document that's available at the top right of DollarSavingsDirect's website (refer to "For Maximum FDIC Coverage, Click Here"). Here's what this document states:

With one phone call to a deposit insurance specialist at DollarSavingsDirect, you may obtain up to five Regional Banks' Certificates of Deposit each insured up to $250,000 per depositor for a total of $1,250,000 in FDIC coverage at a 1.65% Annual Percentage Yield.

I called DollarSavingsDirect yesterday for more info on this. Unfortunately, the process doesn't seem to be as easy as using CDARS. The CDARS program allows you to open one CD at a bank and they take care of breaking up the money into small CDs that are fully FDIC insured across multiple banks. According to the DollarSavingsDirect CSR, you would still have to deposit the money into the savings account. Then instead of opening the CD online, you would call, and they would place the CD at one of those 5 banks. The CSR said they would send you a letter in the mail showing you which bank holds the deposits. The CSR said that the savings account deposits are held by Emigrant Savings Bank – Manhattan. So if you wanted to ensure your money in the savings account remained under the FDIC coverage limit, you wouldn't be able to open the big CDs at one time.

Note, you can also increase your FDIC coverage via different ownership categories, but you have to be careful to ensure the bank sets up the account correctly. DollarSavingsDirect has a useful chart showing how you can do this in their coverage FAQ. Refer to this FDIC brochure for the official rules and helpful examples.

If you're looking for CDARS, you will likely be disappointed with the rates. They are quite a bit lower than regular CD rates available from internet banks. Here's a sample of CDARS rates that are advertised from three different banks as of 6/16/2010:

Cyber CDARS from GCF Banks

• 0.37% APY 12-month, 1.06% APY 24-month

CDARS rates from EverBank

• 0.75% APY 12-month, 1.22% APY 24-month

CDARS rates from United Central Bank

• 0.95% APY 12-month, 1.50% APY 24-month

As you can see above, even the best 2-year CDARS rate is lower than the 16-month DollarSavingsDirect CD (currently 1.65% APY).

It's important to keep under the FDIC coverage limit at any bank, and it's definitely no different at Emigrant Bank. The Bankrate.com ratings of the 5 Emigrant Banks range from 1 to 2 stars based on 12/31/09 data (1 is the lowest). At BauerFinancial they range from 2 to 3 stars based on 3/31/10 data (2 stars is problematic). I have more info on the financial health of Emigrant Bank in this previous post. To review the FDIC info of these 5 banks, search for "Emigrant" at the FDIC Bank Find Tool.