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Where To Stash Your Cash


Interest rates, CDARs and you.

Banks appear to be hustling for depositors in an effort to rebuild their capital base, and that's good news for savers.

Not great news, but better than the anemic interest rates of 2% or so paid in the recent past.

In general, deposits are the least expensive way for a bank to raise fresh capital for new loans. Many banks have been pounded by the sub-prime mortgage mess and need additional money.

The credit crunch has slowed lending among banks, setting off a scramble for new deposits. The banks are betting that refugees from the stock market and non-investors setting aside money for possible tough times ahead are willing to trade yield for safety and will look for a secure place to park their cash.

Federal Deposit Insurance Corp. (FDIC) coverage has been increased to $250,000 from $100,000 per depositor in a single bank through Dec. 31, 2009. This will eliminate the need for some savers to open accounts at more than one bank, but it won't plumb balances.

Boosting the FDIC limit to $250,000 may reduce interest rate expectations. Banks bear the cost of FDIC insurance premiums and the higher cost of the increased coverage may mean lower interest rates on CDs and savings accounts. The $100,000 limit on FDIC coverage was established in 1980.

However, the increased cost of FDIC protection is likely to be offset, at least in part, by the banking industry's desire to increase deposits. In short, there will be no immediate miracles for savers looking for a better return on their savings. is a good place to start when shopping around for a solid return on a CD. The Web site also rates the overall strength of banks on a five-point scale. In general, look for a bank that has a rating of at least three stars. The financial strength of a bank can also be checked at Bauer Financial and Institutional Risk Analytics.

Many regional banks are solid and offer decent returns. Consider The Apple Bank for Savings in New York.

For jumbo CDs, or a minimum deposit of $100,000 with a one-year term, take a look at Capital One Direct Banking, a division of Capital One (COF) or MetLife Bank, a division of MetLife (MET). Both banks offer a 3.92% rate. EverBank of Jacksonville, Fla. offers 3.97%. Rates for six-month CDs are slightly lower.

Major banks are also vying for money seeking a home during the current market turmoil. Note: Rates change frequently so click to the Web site of several banks to find the best rate and desired term.

JPMorgan Chase (JPM) offers 3.75% on a nine-month CD with a minimum opening balance of $10,000. The rate is 4% if you can set the money aside for 48 months.

Wells Fargo Bank (WFC) offers savers 3% on a 7-month CD with a minimum opening balance of $5,000.

Citibank (C) offer 3.92% on a 6-month CD.

US deposit institutions hold about $6.88 trillion, but only $4.24 trillion in insured, the FDIC says. That leaves $2.64 trillion at needlessly at risk. Some depositors lost money when IndyMac Bank failed last summer.

Customers frequently split their funds into amounts less than the FDIC limit and use several banks to receive full coverage, or establish an account in the spouse's name at the same bank, which doubles FDIC coverage. A joint account is insured separately.

A Certificate of Deposit Account Registry Services – CDARS, or "cedars" like the trees – can simplify bookkeeping and save running around town. Through the program, your funds are split into amounts below the FDIC limit and divided among member banks to ensure full coverage up to $50 million.

Check Promontory Interfinancial Network to find banks in your area that participate in the CDARS program.
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