How does FDIC insurance work anyway?

ADM can help you protect tens of millions of dollars with FDIC insurance in a single deposit by leveraging its network of community banks.

FDIC insurance exists to protect you and your business from a worst-case financial scenario: The bank you’ve entrusted with your company funds fails, and suddenly it can’t make good on its obligations to you and your business.

Like all insurance, FDIC insurance is protection you know you need. But less well-known are the details about how FDIC insurance actually works.

What’s covered by FDIC insurance?

Let’s start with the basics: The Federal Deposit Insurance Corporation is an independent agency of the federal government that protects the funds individuals or businesses deposit with a bank. It covers up to $250,000 per depositor and covers several different kinds of accounts such as checking, savings, money market and certificates of deposit.

That means, if your business deposits up to $250,000 in a covered account at FDIC-insured bank, those funds are safe, even if the bank fails.

Who pays for FDIC insurance?

FDIC insurance is different from other types of coverage where the individual or business pays a fee to an insurer for protection. In the case of FDIC insurance, the bank foots the bill, paying all the necessary premiums without directly passing the cost on to you.

If a bank fails, how does the FDIC protect business deposits?

Although the FDIC is a government-affiliated agency, it is not our tax dollars that immediately come to the rescue when a bank covered by deposit insurance fails. Instead, when the FDIC steps in, its first order of business is to try to sell deposits and loans from the failed institution to a solvent one. If a sale occurs, your account is simply transferred to the new institution and your money stays secure.

If the FDIC can’t sell off the assets of the failed institution, it will tap into its own pool of funds. Again, these funds are built from premiums paid by banks, not your tax dollars. These funds will be utilized to reimburse affected customers, up to the insured balances of their deposits. This usually happens within a few days of the bank’s closing.

Does this mean my business can only get FDIC coverage for up to $250,000?

If you deposit all your funds within a single institution, then the answer is yes. But there is another way.

At ADM, we created a proprietary deposit management financial technology (or fintech for short) to allow customers to spread their corporate cash across our insured network of depository institutions with a single deposit, a process that can secure FDIC coverage for up to $75 million while allowing that money to earn a competitive return. That means, regardless of what happens to any institution within our network of banks, your money is safe.

With FDIC insurance, as with all insurance, you hope the time never comes when you have to use it. But as recent history has shown us, worst case scenarios do occur. And when they do, you want to be prepared. We can help. Want to learn more about our deposit management services?Visit our Deposit Management page for more details or talk with one of our friendly associates today.