FDIC insurance for business accounts: Coverage limits by entity type and ownership category
Cash flow is the lifeblood of a business. It depends on money being secure and readily available when you need it. That makes FDIC-insured deposit accounts a useful vehicle for your organization’s cash flow needs. The key is to fully understand the limits of FDIC insurance.
FDIC insurance is a federally managed program that provides up to $250,000 of insurance per depositor at any participating bank. This insurance protects depositors from bank failures. That makes it an ideal tool for protecting your company’s cash from risk until you’re ready to put it to work.
To benefit from FDIC insurance, it’s vital to know how its rules and limits apply to business accounts. The type of business organization you have, where you put your money, the total value of your deposits and the type of account you have all play a role in determining FDIC business account coverage.
What FDIC insurance covers for business accounts
FDIC insurance is designed to protect both businesses and individuals from the risk of bank failures. However, this coverage isn’t unlimited. To get FDIC business account coverage, you need to make sure you’re depositing money in the right type of account.
For one thing, only FDIC-member banks are protected by this insurance program. Also, only certain accounts at those banks are insured.
FDIC insurance applies to:
- Checking accounts
- Savings accounts
- Money market deposit accounts
- Certificates of deposit (CDs)
Even if you’re dealing with an FDIC-member bank, the following types of accounts are not covered:
- Investment accounts
- Mutual funds
- Annuities
- Safe deposit boxes and their contents
- Crypto assets
The types of accounts covered are a good fit for the liquidity needs of a business. If you’re looking for longer-term or more speculative investments, you may have to risk an account that is not covered by deposit insurance.
FIDC coverage limits for business accounts
FDIC insurance covers up to $250,000 per depositor and any FDIC-member bank. To understand how the $250,000 limit applies to FDIC business account coverage, it’s important to recognize how the FDIC defines “depositor” and “bank.”
A depositor is considered to be any one entity, whether it’s an individual or organization. The limit applies across all the entity’s accounts at a bank. So, simply opening two accounts instead of one won’t increase your deposit insurance limit.
An organization is only considered a separate depositor if it’s legally registered to do business and is engaged in an independent activity. That means it must be a separate, legitimate business and not simply a vehicle to hold the deposits of an individual or other corporation.
Since the $250,000 limit applies to all a depositor’s accounts at any one bank, all branches and affiliates are considered to be part of the same bank. So, for example, if you already have a $250,000 account at the local branch of a bank, opening another account via the same bank’s online portal would not make you eligible for any more deposit insurance.
FDIC coverage by business ownership category
Business deposit insurance applies to a variety of different organizational structures, including:
- For-profit corporations
- Not-for-profit organizations
- Subchapter S corporations
- Limited liability corporations (LLCs)
- Professional corporations (PCs)
- Partnerships
- Non-commercial associations
In each case, the $250,000 deposit insurance applies to the organization itself. It doesn’t matter how many partners, shareholders or officers an organization has.
Sole proprietorships are treated differently from the above types of organizational structures.
FDIC insurance for sole proprietors or DBA accounts is not applied separately from insurance for the business owner’s accounts. Sole proprietorship or DBA accounts would be combined with the deposits of the business owner for the purposes of the $250,000 limit, even if the deposits were in separate accounts.
How multiple business accounts at the same bank are treated
Business deposit insurance can get tricky when it comes to organizations with multiple divisions or those doing business in multiple locations.
Deposits in all accounts owned by the same entity are grouped for the $250,000 insurance limit. It doesn’t matter if those accounts are in different cities, with different branches of the same bank or for different business purposes.
Suppose you have a headquarters in the central city and a retail location in the suburbs. Managers in each location open accounts with the same bank:
- The headquarters deposits $225,000 in a checking account for payroll purposes at a bank in the central city.
- The retail location opens a $75,000 account for promotional materials at a branch of the same bank in the suburbs.
Combined, those deposits total $300,000. Since they are owned by the same organization and held by the same bank, this would be above the deposit insurance limit of $250,000 and $50,000 of the organization’s money would be uninsured.
The FDIC has a calculator tool called the Electronic Deposit Insurance Estimator (EDIE). You can enter details of your accounts at a given bank to see if all of your deposits are within FDIC coverage limits.
How to check whether a business bank account is FDIC insured
FDIC insurance only applies to banks that are members of the FDIC. You can look up whether your bank is covered on the FDIC website.
The FDIC site has a “BankFind” page. On this page, you can enter the name and location of any bank. If it’s a member of the FDIC, the page will display details about that bank.
When a bank’s information is displayed on the BankFind page, you’ll be given the option to look up “Other Names” for the bank. If you click on this, it will show other names the bank may be doing business as. Sometimes a bank will operate under different names for branding purposes. However, if those different brands are all registered as the same bank, your accounts at any of those brands will count towards the same deposit insurance limit.
Using the BankFind tool can be crucial because these days there are several financial technology (fintech) companies that offer products similar to bank accounts. However, not all of these fintech companies are registered as banks. Some of them have banking services provided to them by actual banks. You need to be aware of that, because if your business also has accounts at a bank that’s providing banking services to a fintech you’re using, it could put you over the insurance limit.
Best business bank accounts
What to do if business balances exceed FDIC limits
Suppose you check the balances of your business accounts at a bank and find the total exceeds the insurance limit. What should you do then?
Fortunately, you have plenty of options. There are more than 4,000 FDIC-insured banks. That means you can readily find additional banks to spread your deposits among so that the total at no one bank equals $250,000. Before choosing other options, you should use the BankFind tool to check that they are FDIC members. You should also verify that the products you’re choosing are eligible for FDIC insurance.
Common FDIC insurance mistakes for business owners
Businesses are subject to enough risks without having to worry about losing money when a financial institution fails. That’s why verifying that your deposit accounts are fully covered by FDIC insurance is a sound business practice.
In doing so, here are some common mistakes to avoid:
- Assuming that each account at a bank gets its own insurance limit, rather than all of them counting towards the same limit.
- Not recognizing that the accounts of different divisions or offices of the same company all count towards the same limit.
- Blurring the line between business and personal assets. Unless your business is registered as a separate entity and engaged in activities that are independent from your household finances, its deposits may be considered along with your personal deposits for the purposes of the FDIC insurance limit.
- Not verifying that an institution that provides products similar to a bank’s is actually an FDIC member.
- Assuming all accounts provided by an FDIC member are insured. Banks may offer several types of accounts that are not eligible for deposit insurance.
Next steps before opening or funding a business account
FDIC deposit insurance is a great resource for protecting your company’s deposits. Not only that, it takes very little effort to benefit from this protection.
Whether you’re opening a new business account or want to check on the protection of existing accounts, here are some steps to take:
- Use the FDIC’s BankFind tool to check that the bank’s deposits are insured by the FDIC
- Confirm that the account is in a product that is eligible for FDIC insurance
- Make sure the account is in the correct legal name of your business
- Add up the total balances your organization has at the bank to make sure the total is below the $250,000 deposit coverage limit
- If the business is a sole proprietorship or DBA, add your personal deposits at the bank to the above total, because they will count towards the same insurance limit
There are a great many FDIC-insured banks and products you can choose from. Besides verifying the insured status of any account you open, you should also compare interest rates, fees and other terms before choosing a product. Even while making the safety of your deposits a priority, there’s no reason you shouldn’t also try to earn the best return available on those deposits.
Frequently asked questions
Yes, as long as they are at an FDIC-member bank, in products eligible for deposit insurance, and the LLC’s total deposits fall within the $250,000 coverage limit.
No. Those deposits are counted along with personal accounts, so the total must fall within the $250,000 coverage limit.
No. The total of all deposits of the business at any one bank counts toward the $250,000 limit.
First, use the FDIC’s BankFind tool to make sure your accounts are held at an FDIC member bank. Then add up the total of all deposits your business has at that bank to see if they fall within the $250,000 limit. Or, you can use the FDIC’s Electronic Deposit Insurance Estimator to compare the total of your deposits to that limit.
