The Federal Deposit Insurance Corporation’s (FDIC) main role is to protect money on deposit with an insured bank in the unlikely event of a bank failure. It also maintains stability and confidence in the nation’s financial system, and it insures each depositor at an institution up to $250,000.
Periodic audits are done on all participating banks to monitor the financial health of the bank’s portfolio. If a shortfall is noticed, immediate action is taken to avoid a bank closure if possible. In the event a participating bank fails, the FDIC acts quickly to restore access to funds.
There are alternative methods to increase protection up to $5 million. One institution offering a solution for higher balances is Mercury
- How Does FDIC Insurance Work for Business
- When Does the FDIC Step In?
- What Is Covered with FDIC Insurance for Business Accounts
- What Is Not Covered With FDIC Insurance for Business Accounts
- Pros & Cons of FDIC Insurance for Business Accounts
- Additional FDIC Insurance With CDARS & ICS From IntraFi Network Deposits
- Other Ways to Insure Business Funds in Excess of $250,000
- How to Know if a Bank Is FDIC-insured
- Frequently Asked Questions (FAQs)
- Bottom Line
How Does FDIC Insurance Work for Business
The recent collapse of six different banking institutions over the last 18 months has planted doubt in the minds of business owners everywhere. Often, the first question of an account holder regarding a failed institution involves the safety and security of the funds they had on deposit. Is this money lost, or is there any form of insurance to protect these funds?
The FDIC covers business accounts much the same as personal accounts. The maximum amount of coverage at a single institution is $250,000 per depositor. The FDIC recommends all business accounts be set up separately from personal accounts to ensure you receive the full benefits of coverage.
Any account used for personal and business simultaneously will only receive the $250,000 maximum amount once. This is because all account totals are aggregated if held in the depositor’s name only.
This is also true of a sole proprietor business account that’s set up under a personal Social Security number since it falls under the personal threshold of $250,000. If your business has a tax ID number separate from your Social Security number, it is best to have separate accounts for maximum coverage. This makes record-keeping and tax calculation cleaner and easier to manage. When opening a business bank account, it’s a good idea to speak with your banker to ensure you have everything set up properly.
When Does the FDIC Step In?
The FDIC goes to great lengths to monitor and supervise financial institutions for safety and soundness providing consumer protection. It will step in if a bank fails or if it’s being closed by a federal or state banking regulatory agency.
What Causes a Bank to Fail
Typically, a bank fails or is closed when it becomes critically undercapitalized or when it has reached a financial impasse where it’s unable to meet the obligations to depositors and others. Some recent causes have been linked to banks being heavily invested in one area without diversifying the investment across a variety of financial assets.
This causes an imbalance in the bank’s portfolio. If that one division experiences a downturn, it could begin a spiral that may eventually lead to a bank failure. In general, most banks diversify their portfolios so that there are alternative sources of income in the event of a turn in the market.
For information about protecting your business funds, check out our guide to protecting your business from bank failure.
What Happens to the Seized Assets
The FDIC has a plan of action to cover the balance of each insured account when it is seized due to a failure or closure. A temporary bank is set up to handle the funds of the closed bank until other arrangements can be made. Generally, the FDIC is involved before the closure and will offer some or all of the failing bank’s assets to healthy financial institutions.
The table below includes insurance information provided by the FDIC’s website.
| FDIC Insurance Limits | |
|---|---|
| Account Ownership Type | FDIC Insurance Amount |
| Single Accounts―Owned by One Person | $250,000 per owner |
| Joint Accounts―Owned by Two or More People | $250,000 per co-owner |
| Certain Retirement Accounts, Including Individual Retirement Accounts (IRAs) | $250,000 per owner |
| Revocable Trust Accounts | $250,000 per owner per unique beneficiary |
| Corporation, Partnership & Unincorporated Association Accounts | $250,000 per corporation, partnership, or unincorporated association |
| Irrevocable Trust Accounts | $250,000 for the noncontingent interest of each unique beneficiary |
| Employee Benefit Plan Accounts | $250,000 for the noncontingent interest of each plan participant |
| Government Accounts | $250,000 per official custodian |
What Is Covered with FDIC Insurance for Business Accounts
- Business checking accounts
- Business negotiable order of withdrawal (NOW) account ( interest-earning demand deposit account)
- Business savings accounts
- Business money market deposit accounts
- Business time deposits, such as certificates of deposit (CDs)
- Cashiers checks, money orders, and other official items issued by the bank
Our related resources:
- Best Small Business Checking Accounts
- Best Business Savings Accounts
- Business Money Market vs High-yield Savings
- Business Money Market vs CD
What Is Not Covered With FDIC Insurance for Business Accounts
- Stock Investments
- Bond Investments
- Mutual Funds
- Life Insurance Policies
- Annuities
- Municipal Securities
- Safe Deposit Boxes or Their Contents
- United States Treasury Bills, Bonds, or Notes
- Cryptocurrency Assets
| FDIC Insurance | APY | Accepts Cash Deposits | |
|---|---|---|---|
 | Up to $5 million with a money market fund through sweep network | Treasury Account up to 5.39% yield with a minimum deposit of $500,000 | No |
| Visit Mercury | |||
 | Up to $3 million through partner banks and sweep networks | 1.3% APY on balances up to $250,000 | Yes, at all Green Dot retail locations and Allpoint ATMs |
| Visit Bluevine | |||
 | Up to $3 million through partner banks | 1.0% to 3.0%, depending on the balance | Yes, at Allpoint ATMs and Green Dot retail locations |
| Visit Relay | |||
Pros & Cons of FDIC Insurance for Business Accounts
| PROS | CONS |
|---|---|
| Guarantees business funds up to $250,000 will be insured in the unlikely event of a bank failure | Insures up to $250,000 for most accounts, which may be much less than a business has on deposit |
| Is automatic at member banks; you won’t have to pay a premium to receive coverage | Has a low insurance limit for a business, which might require you to hold business funds at multiple banks |
Additional FDIC Insurance With CDARS & ICS From IntraFi Network Deposits
If you’re looking for additional options, you may want to consider CDARS (Certificate of Deposit Account Registry) and ICS (Insured Cash Sweep) accounts.
- CDARDS means any funds you deposit will be placed in a CD.
- ICS means the funds would sweep across partner banks when balances exceed the typical limit.
These products are utilized by banks and financial technology (fintech) companies to insure deposits in excess of $250,000 by using IntraFi Network Deposits.
Other Ways to Insure Business Funds in Excess of $250,000
- Choose a provider that sweeps funds into multiple banks.
Check with your financial institution to see if they partner with other banks. Confirm they have the ability to split your funds to ensure your deposits are covered at all times.
- Open accounts at multiple banks.
If you decide not to use a bank that offers the sweep option, you can engage with multiple banks independently. You would need to keep tabs on your account balances at all times, making sure your balance stays under $250,000.00. If the balance does rise above the insured amount, you would need to move the overage into another insured account at a different bank.
- Move some of your funds to a Credit union.
Credit unions do not participate in the FDIC insurance program. The National Credit Union Administration(NCUA) has its own insurance program under the National Credit Union Share Insurance Fund, which also provides insurance on funds up to $250,000.
- Choose an FDIC bank that is also a member of the Depositors Insurance Fund.
The Depositors Insurance Fund (DIF) can insure funds over the normal limit. Before opening your account, confirm the bank is a member of FDIC and also DIF.
- Find other providers of FDIC Insurance.
Some companies will provide FDIC insurance over the standard $250,000 limit. One provider is Wintrust. It has a specialized program called MaxSafe that allows it to cover deposits up to $3.75 million. Visit Wintrust to learn more.
How to Know if a Bank Is FDIC-insured
Banks that are FDIC-insured must have the FDIC logo both at the bank’s physical location and on all marketing materials. Look for the FDIC Logo on the bank’s website or at its branch.
You can also call the FDIC at (877) ASK-FDIC or (877) 275-3342. Another tool is the FDIC’s BankFind tool. This will show you if a specific bank is covered by FDIC insurance. Make sure to confirm the bank is FDIC-insured before opening a business account. Remember, Credit unions are not governed by FDIC guidelines, so they are not covered under the FDIC guidelines.
Frequently Asked Questions (FAQs)
What is FDIC insurance for business?
The FDIC offers coverage for business accounts in the same manner as personal accounts. The maximum amount of coverage at a single institution is $250,000 per depositor.
Does FDIC work for multiple accounts at the same bank?
Yes. The coverage can cover multiple accounts up to $250,000. This is per depositor. As an example: If your business has 4 accounts with $50,000 each, they would all be covered under FDIC insurance since the total is under $250,000. If the total went over $250,000 the overage would not be covered.
How does FDIC pay depositors?
The FDIC generally acts quickly when a bank closes or fails. It can pay out as early as the next business day or within a few days. In some cases, the funds are deposited into a new account that the depositor is given access to.
Are CDs covered by the FDIC?
Yes. A CD is considered a time deposit and is covered by the FDIC.
Are FDIC limits different based on business type?
No. Each business with a different tax ID number is covered by up to $250,000 per depositor, per bank.
Does the FDIC provide insurance to credit unions?
No, the FDIC does not work with credit unions to provide coverage. However, there is a similar agency that takes care of credit unions and their members. This agency is known as the National Credit Union Administration (NCUA). The coverage amounts are similar, but some of the regulations are a bit different.
Bottom Line
The banking industry overall thrives in a stable environment. Over the last 18 months, we have witnessed multiple bank failures, which brings questions to our attention regarding the safety of our funds. The FDIC gives us peace of mind by insuring our accounts up to $250,000.
For depositors having more than $250,000, alternative programs—such as sweep accounts, partner banks, CDARS, and ICS—are available. Doing a thorough review of your account balances regularly and making adjustments as needed will allow you to receive the full benefit of the insurance in place to protect your business.
