Program Allows Customers to Beat $100,000 Limit
About 500 banks, which are largely community and regional banks, are participating in a program that allows their customers to purchase CDs in one place even when they are past the $100,000 limit, and still have the funds insured.
Promontory Interfinancial Network, which runs the Certificate of Deposit Account Registry Service program, acts like a clearinghouse for participants. The clearinghouse matches deposits from one financial institution to another one so that the amount of CD funds a bank places with the clearinghouse will remain on that bank's books. It works like this:
A customer that has more than $100,000 that they want put into CDs, can place those funds with the bank. The bank sets the interest rate for the CDs. Funds in excess of the $100,000 are used to buy CDs at other banks, and in turn, the network will find other banks that will purchase like amounts of CDs at the original bank. If there is a difference in pricing from one bank to the other, the network uses a system it calls a "rate bridge," which means that the fee difference is swapped up front.
Banks using the system retain the relationship with the customer, providing one bank statement for all the CDs. The banks where the other CDs are placed know only account numbers, not customer information.
Banks pay a fee to join the network, then they pay transactions fees. Some banks pass those costs on to CD buyers by reducing interest rates. But for many customers, the convenience of placing all their funds in one place is well worth it. They get one statement and they don't have to set up separate accounts at a number of banks.
The network was started in 2002 by three former banking regulators as a means to allow smaller institutions a way to compete for larger dollar amounts and as a means for bank customers to securely place larger amounts of money. Most recently, the network was opened for use for Individual Retirement Accounts and for longer-term CDs - up to three years. For information, go to www.promnetwork.com.
Copyright © 2003 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 8, 11/03
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