Congress created the Federal Deposit Insurance Corporation [FDIC] to protect public deposits and rebuild trust in the financial system following the widespread bank runs of the Great Depression. That was back in 1934, and not much has changed since then except for the FDIC coverage limit growing by a multiple of 100 – from $2,500 to $250,000 as of 2024.
Today, the FDIC covers up to $250,000 per account owner / ownership category at each insured bank. This means if a person has an individual and a joint account at the same bank, they can receive $250,000 of insurance for each. Businesses can also receive FDIC insurance up to $250,000 per account ownership category, per bank. This coverage extends to both principal and accrued interest while the account balance remains within the limits.
Obtaining FDIC insurance for business is automatic at member banks but there are important caveats you should understand. For example, the FDIC will cover 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. Cash managers need to understand these limitations and how to obtain FDIC insurance so that they can keep their company’s cash safe. The safety that FDIC insurance offers is especially important today.
Recent Banking Turmoil Reaffirmed the Importance of FDIC Insurance
Three of the four largest bank failures in American history occurred last year. All three of the failed banks held an abnormally large percentage of uninsured deposits – those above the FDIC limit. Due to the abundance of uninsured deposits, many of the businesses that invested with these banks faced the prospect of losing their hard-earned funds.
Fortunately, the FDIC and Treasury took historic action to protect depositors at the failed banks, but this is never a guarantee. Businesses shouldn’t rely on the possibility of special accommodation to protect them from bank failures in the future. Instead, these companies should ensure all their cash is covered by FDIC insurance*.
Businesses can extend FDIC insurance limits with fintech.
As a business grows, a combination of checking accounts, savings accounts and certificates of deposit can quickly exceed the $250,000 limit. 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.
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 get the full balance of their deposits covered. This strategy utilizes the combined FDIC insurance of the various banks to extend the total amount of coverage. However, manually managing several banking relationships and the related reconciliations is a tedious and often costly process.
To illustrate the complexity of this 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 many 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 highly manual process would require an entire team of employees to effectively manage. However, with the assistance of modern 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 with a single account, 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] – provides access to extended FDIC coverage* for the totality of business deposits without these limitations. We do this through a concept called Marketplace Banking™ that is powered by our proprietary fintech.
Marketplace Banking™ works by automatically distributing funds across our nationwide network of financial institutions that compete for deposits. This process allows a business to achieve extended FDIC protection while accessing nationally competitive returns. The best part is businesses can receive these benefits with one account and one consolidated monthly statement.
Overcoming personal FDIC insurance limits is also easier than ever.
Just like businesses, individuals with more than $250,000 at a single bank are at risk of losing some of their money in the event of bank failure. Individuals could open new accounts at different banks to extend their FDIC coverage, but it’s likely even more difficult for the average person to manage this complex process than it is for businesses.
Once again, fintech has provided a solution. Our partner, MAX, can provide access to extended government insurance for individuals in the same way ADM helps businesses secure protection. Like ADM, 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.
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.
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*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.