Following the widespread bank runs of the Great Depression, Congress created the Federal Deposit Insurance Corporation [FDIC] to protect the public’s deposits and regain their trust of the financial system. That was back in 1934, and today not much has changed except for the FDIC coverage limit growing by a multiple of 100, from $2,500 to $250,000 as of 2023.
Today, the FDIC covers up to $250,000 per account owner / ownership category at each insured bank. This means individual and joint accounts at insured institutions can each receive $250,000 of insurance with a common account owner. As with individual accounts, businesses can also get FDIC insurance of up to $250,000 per entity, per bank. FDIC insurance extends to both the principal and accrued interest while the account balance remains within the limits.
It is important to note there are certain caveats for businesses. For example, the FDIC will provide insurance for business accounts as long as the entity was not formed for the sole purpose of extending FDIC insurance. Additionally, business deposits do not interfere with the FDIC insurance coverage for any owners or employees who have individual deposits at the same bank.
Businesses Are Holding More Cash in 2023
From mid-2019 to mid-2022, corporations increased their cash on hand by an astounding 61%, and these funds have been instrumental in helping businesses adapt to inflation while keeping their prices competitive. As interest rates continue to rise, reserve cash that is earning a competitive return becomes even more beneficial.
Since corporate cash plays such an important role, securing full FDIC protection is pivotal. With modern solutions, businesses can also achieve nationally competitive rates without sacrificing liquidity.
Businesses can extend FDIC insurance limits with fintech.
As a business grows, a combination of business checking accounts, savings accounts and certificates of deposit can quickly exceed the $250,000 limit. Again, this situation creates a real risk of losing deposits in the event of a bank failure. In the past, this problem required a labor-intensive solution, but now there are innovative ways to overcome these insurance limits without the headaches.
For example, to overcome the standard limitations of FDIC insurance at a single bank, a business could create enough accounts at other insured banks to ensure all their deposits are covered. This strategy utilizes the combined FDIC insurance of the various banks to extend the total amount of FDIC coverage. However, manually managing several banking relationships is a tedious and often costly process.
Consider a business with millions in cash that must be deposited safely and readily available when needed. That business would need to identify the banks with the best rates, develop and manage relationships at all those banks, and perform reconciliations for all those account statements. Then, that business would need to monitor the marketplace to ensure they are getting the most competitive rates available, while continuously shifting funds to maintain an optimal return on investment. This process could require an entire team of employees to effectively manage it. However, with the emergence of advanced financial technology [fintech], those days are over.
Fintech Alternatives for Extending FDIC Insurance
Some services such as Network DepositsSM (formerly CDARS and ICS) can extend FDIC protection, but there are limitations on the amount of coverage, types of protection, and availability of funds for those services. These limitations require businesses to make concessions when compared to other options. On the other hand, our company, the American Deposit Management Co. [ADM], can extend FDIC coverage* to the totality of business deposits with a single deposit into an American Money Market Account™ [AMMA™], all while providing next-day liquidity. We call this solution Marketplace Banking™.
At ADM, we provide access to extended FDIC coverage by utilizing our proprietary fintech to automatically distribute funds across our nationwide network of financial institutions that compete for deposits. This allows a business to access extended FDIC protection while streamlining the management of its cash. It also allows the business to access nationally competitive returns for their deposits.
Overcoming personal FDIC insurance limits is also easier than ever.
Just as with businesses, individuals who have more than $250,000 at a single bank are at risk of losing some of their money in the event of bank failure. Those individuals could open new accounts at different banks to extend their FDIC coverage, but it may be even more difficult for individuals to manage this complex process than it is for businesses.
Once again, fintech has provided a solution for individuals that can easily overcome the headaches of protecting a large sum of cash. Our partner, MAX, can provide access to extended government protection for individuals in a way that is similar to ADM’s method of helping businesses secure extended protection. In addition to safety, MAX can also offer more competitive returns than most banks because of their large and diverse network of financial institutions competing for deposits.
Earn more, risk less® with ADM.
At ADM, we take the work of business cash management off your plate. In addition to extended safety and nationally competitive returns for business deposits, we offer a full suite of cash management solutions. From business escrow to vendor payments, we’ve got business cash management covered.
So, if your organization maintains a large reserve of cash, is looking to make a major purchase, or if you are trying to reduce the work required to manage business cash, don’t hesitate to contact us.
If you’re looking for even more valuable insights on banking, interest rates, and effectively managing your business cash, be sure to check out our Insights page and follow us on LinkedIn, Twitter and Facebook.
*Funds in an AMMA™ can be deposited with traditional banks or Credit Unions. When funds are deposited at a credit union, NCUA insurance will be available in lieu of FDIC insurance and is functionally equivalent.