The Federal Deposit Insurance Corporation (FDIC) has a track record of paying every depositor their money up to the insured amount when their banks have failed. Each insured bank pays a fee for the coverage, which goes into an account to cover insurance costs.
Create Separate Accounts
The FDIC advises business owners to create separate business accounts from their personal accounts for tax purposes. It enables your business and personal accounts to be insured separately. Sole proprietors are different; the combination of personal and business accounts is insured for a total of $250,000.The insured ceiling of $250,000 holds true for individual banks. If you have $450,000 in a single account, you have $200,000 that is not insured. If the $450,000 is split between two banks with $225,000 in each, all the money would be covered.
How the FDIC Pays After a Bank Fails
When an FDIC-insured bank closes, the agency offers the bank up for auction, and the new bank takes over the accounts. Money held in the failed bank is usually made available to depositors at the new bank within two days. If no bank buys the old bank and takes over the accounts, the FDIC uses its money to pay depositors by check.Accounts Not Covered by the FDIC
Many businesses will have their corporate accounts covered if their bank fails—but some are not. According to Investopedia, the business must be organized under applicable state laws. A business entity created to increase FDIC coverage is not insured.Three Options for Million-Dollar Companies
The Maxsafe Option
The IntraFi Network
Use CDARS to Protect Millions
What to Do When Your Bank Closes
NerdWallet suggests keeping emergency funds at a separate bank from your business accounts. Your funds in this account should equal a month’s worth of expenses—and possibly more. If your bank fails, it gives you access to funds to meet your needs.Handling Payroll
A bank closure can lead to problems when your business needs money for payroll and accounts payable, etc. It can be even more pressing when your payroll funds are locked up at payroll time. Ideally, having a secondary way to pay your employees will avoid this problem. Creating another account for this purpose at a separate bank eliminates this possibility.Check the Financial Status of the Bank
Before opening a business bank account, check the bank’s financial status. Ensure it is stable and able to handle its customers’ funds and demands. Be careful of banks that focus heavily on a single sector; SVB, for example, focused on startups in the tech sector. You also want to check and compare fees, checking fees, and the cost of any other services you need. Also find out if the bank is FDIC insured—which you can do at the BankFindSuite, which is run by the FDIC.Besides ensuring that your business accounts are safe and protected by the FDIC, you also need to work with the bank to employ various tools to help protect your accounts from other issues. Your bank can advise you on steps you can take to protect your money from hackers, employee abuse, etc.—if they have access.
When you have business accounts at more than one bank, it ensures that you have access to funds, even when one bank should fail. Remember that even large ones can fail (e.g., SVB). Since no one knows the fallout that could result in the future from the recent collapse of large banks, it is best to secure your business money now.