How to Protect Your Settlement Money from a Bank Failure


The FDIC covers only $250,000 in customer deposits. If your settlement exceeds $250,000, you will not have full FDIC insurance for your deposit in the event of a bank failure or insolvency. If your deposit is $1,000,000, you will not have FDIC insurance for $750,000. This is risky for settlements exceeding $250,000, but there is a solution.

Certificate of Deposit Account Registry Service (CDARS) allows you to invest in certificates of deposit (CDs) held by many different FDIC insured banking institutions, so it can achieve full FDIC coverage for the total sum. With CDARS, you have the safety and security of access to FDIC insurance for large deposits exceeding $250,000. You can deposit virtually unlimited sums into CDARS.

Your large deposit is broken into smaller amounts and placed with other banks that are members of the CDARS network. By working with just one bank, you can receive FDIC insurance through many. These banks issue certificates of deposit in amounts under the standard FDIC insurance maximum, so that your investments are eligible for FDIC protection. You sign a CDARS Deposit Placement Agreement and a custodial agreement and deposit the money.

With CDARS, there is no need to consolidate bank statements. You receive one statement listing all of your certificates of deposit along with their issuing banks, maturity dates, and interest earned. There are no additional fees for using CDARS.

You earn one rate of interest on your entire investment. Maturity rates for the certificates of deposit can range from 4 weeks to 254 weeks. If you need access to the funds before the respective CDs mature, you will pay a penalty.