Here’s a little secret about the $100,000 limit on federal insurance for bank deposits: There are ways around it.

By that I mean there are ways to make sure that your money is safe even if you have more than $100,000 at a single bank.(1)

Most people seem to think the $100,000 of FDIC insurance is “per Social Security number.” It’s not.It’s based on the way the account is registered.

For instance, say my husband and I have $500,000 we want to invest in CDs. To get the entire amount insured, we could open five separate CDs at “Big Bank” with the following registrations or titles:

CD No.1: $100,000

       Registered in the name of Gail Buckner,

       SSN: 000-00-0000

CD No.2: $100,000

       Registered in the name of Spouse Buckner.

       SSN: 111-11-1111

CD No.3: $100,000

       Registered jointly in the name of Gail Buckner and Spouse Buckner

       SSN: 000-00-0000 and 111-11-1111

CD No.4: $100,000

       Registered in the name of Buckner Child A

       SSN: 222-22-2222

CD No.5: $100,000

       Registered in the name of Buckner Child B,

       SSN: 333-33-3333

Voila!  Even though the CDs are all with “Big Bank,” since each has a different registration--and therefore different Social Security numbers associated with it--each CD is insured for the full amount of Federal Deposit Insurance.

Not So Fast

The problem with this approach is that life can get complicated. In the case of a divorce, the way assets are titled can make splitting them up more difficult.  Or, let’s say Child A suddenly develops an independent streak upon reaching adulthood. She could legally take the money in “her” CD and do whatever she wants with it.

Your alternative, of course, is to run around town spreading your $500,000 among five separate institutions.  This is a hassle, both in terms of opening the accounts and keeping track of them.  You’ll get five separate statements.

An Easier Way

Until about five years ago this was your only option. But then three really smart individuals who held top jobs in the banking industry and/or government(2), came up with an ingenious solution: the Certificate of Deposit Account Registry Service- “CDARS,” for short.  (It’s pronounced “cedars,” like the tree.)

Imagine that you have $200,000 you want to invest in CDs and you want it completely insured.

You would simply take this money to a bank in the CDARS network and open a CDARS CD. Your bank then makes arranging gements with two other institutions in the network and splits up your money into three separate CDs, each held at a different bank. 

Why three CDs for $200,000?  “We want to keep each CD under $100,000 so the principle and any accrued interest is covered,” explains Phil Battey, spokesperson for Promontory Interfinancial Network, which created the system.

One-Stop Shopping for Large CDs

“We can get anyone up to $50 million in FDIC coverage through one bank,” said Battey.  “From the customer’s point of view, they make one transaction, at one bank, at one interest rate and receive one consolidated statement.” 

Banks that want to be part of the CDARS network pay a fee for each transaction. There is no fee to the customer. You can choose anything from a four-month to a 5-year maturity.

The American Bankers Association, which has endorsed the CDARS program, calls it a great product. 

"It allows banks to swap deposits among each other so that they can spread the risk if you have more than $100,000.  It makes it more convenient, ” said spokesperson John Hall.

He points out that while most of us think people who have a lot of money to invest in CDs must be wealthy, which isn't always the case. “A lot of retired people sell their homes and move to a smaller one and want to keep their money in cash.”

Finding a CDARS Bank

At this point, more than 2100 banks have joined the CDARS network.  Although there are a few large institutions, most are locally-based community banks.  You can search for one in your area by going to http://www.cdars.com/index.php. Then click on “Where to Find CDARS.”

“People can do business with their community bank and still have the confidence that their money is safe,” said Hall.

Word about the benefits CDARS offers is spreading fast. According to Promontory’s Battey, “We’re doing twice as many transactions as we did in January and triple the number we did a year ago.”

1) A retirement account, such as an IRA, is covered by FDIC insurance up to $250,000

2) Eugene Ludwig, chairman and CEO of Promontory Interfinancial Network, is a former Comptroller of the Currency.

Alan Blinder, Promontory vice-chairman, is a former economist at Princeton and was once vice-chairman of the Federal Reserve.

Mark Jacobsen, Promontory’s president and CIO, is a former Chief of staff at the FDIC.