The Federal Deposit Insurance Corporation (FDIC) was created in the wake of the Great Depression to help rebuild American’s trust in the banking system. The National Credit Union Administration (NCUA) also exists for insuring credit union deposits and is nearly identical in coverage to the FDIC. Since the amount was adjusted during the Great Recession, FDIC insurance covers “$250,000 per depositor, per insured bank, for each account ownership category.” What exactly does this mean, and how your business take advantage of FDIC insurance for business accounts?
The FDIC insures individual deposits and business deposits against bank failure.
According to the FDIC, “no depositor has ever lost a penny of FDIC insured funds since 1933.” The way this all works is FDIC insured banks pay a small fee, fractions of a cent on the dollar, into an insurance fund. Then, in the event of a bank failure, the FDIC guarantees the investment up to applicable limits. They will then auction the assets and liabilities of the failed bank to recover funds, often with extra financial incentives.
This has been the case for almost all bank failures since the financial crisis. If a resolution cannot be fully met with an auction, the FDIC will reimburse all insured deposits directly from the insurance fund. In the past, there has been a rumor that the FDIC takes up to 99 years to make such payouts, which has been addressed by the FDIC themselves. The FDIC states that “the FDIC almost always pays insured depositors within a few business days of a closing, usually the next business day.”
FDIC coverage limits insurance at a single bank for individuals and businesses.
The maximum amount of insured deposits that a single account owner can have at a FDIC insured bank is $250,000. Coverage can span many types of deposits, such as checking and savings accounts, money market accounts, certificates of deposit and more.
On the other hand, FDIC insurance does not cover other types of investments such as stocks, bonds, mutual funds, life insurance, or annuities. When your business needs absolute certainty that its cash is safe, make sure its investments are covered by FDIC insurance.
The FDIC is in place to make sure that American’s and their businesses have confidence in the banking system. Without such systems, the American financial sector, and thus the entire economy, could suffer.
Is it possible for my business to get more than $250k in FDIC insurance?
Yes. The FDIC can cover more than $250,000 in deposits if those deposits are spread across multiple FDIC insured banks. For example, keeping $400,000 in a single savings account will leave $150,000 uninsured. But, splitting those deposits equally with another account at a different bank will result in two accounts with $200,000, both of which will be fully insured.
If your organization keeps a large cash reserve, well in excess of the $250k limit, it can become tedious and expensive to manage multiple banking relationships in order to achieve full FDIC coverage. Luckily, the advent of financial technology, or fintech, has changed the game for businesses who need FDIC coverage for large sums of cash.
At The American Deposit Management Co. [ADM], we have leveraged this technology to allow distribution of very large sums, even in excess of $100M, to our proprietary network of local banks by making a single deposit into your Marketplace Banking™ account. This allows for FDIC coverage on all your cash reserves without the hassle of managing multiple banking relationships.
In addition to maximum FDIC protection for your business deposits, this fintech provides additional benefits. First, since a network of banks is competing for your cash deposits, you get the most competitive rates available on your cash, even in a low interest rate environment. And, the best part is you keep your current bank. This type of technology is not meant to replace your bank, it’s designed to be complimentary.
FDIC insurance treats business accounts the same as personal accounts.
Business accounts for corporations, partnerships and unincorporated associations get the full $250,000 in FDIC coverage, separate from any owner or member. However, such businesses must be “separately organized under state law and operate primarily for some purpose other than to increase deposit insurance coverage.” That is, a company cannot be formed solely for the purpose of extending an individual or business’s FDIC coverage at a bank.
It may be impractical for businesses that maintain large cash reserves to manage multiple banking relationships. To achieve higher than $250k in FDIC protection, business owners could take advantage of the strategies achieved by fintech detailed above. However, it may be impractical for businesses that maintain large cash reserves to manage multiple banking relationships.
My business needs additional FDIC protection. Where do we start?
Begin by contacting a member of the ADM team. All it takes is a 10-minute application, and within a few hours you can make your first deposit – then we take it from there. By opening a Marketplace Banking™ account with ADM, your business will have access to the MOST protection available for your cash reserves. In the meantime, be sure to follow us on LinkedIn, Twitter and Facebook to stay up to date with our valuable market insights and interest rate updates