However, concern about bank failure is still relevant, as the U.S. has seen four additional bank failures in 2023, and worries about entering another economic recession or depression abound.
So, what would you do if your bank failed? Do you know if your business’s assets or your personal assets would be protected? Would you lose all of the money you have deposited in that bank?
The answers to these questions can be found in the Federal Deposit Insurance Corporation (FDIC) and the standard insurance protection it provides to depositors in the United States.
What Is FDIC Insurance?
The FDIC provides standard insurance, called FDIC Deposit Insurance, for the protection of up to $250,000 per depositor, per insured bank, for each account ownership category, in the event of a bank failure.
Is Your Account Covered by FDIC Insurance?
The FDIC insures deposit accounts such as checking and savings accounts, money market accounts, certificates of deposit, and checks or money orders issued by banks. It does not cover stock and bond investments, mutual funds, life insurance policies, annuities, municipal securities, safe deposit boxes, Treasury bills, bonds, or notes.
How Does FDIC Insurance Work?
As mentioned above, the FDIC protection covers $250,000 per depositor per insured bank for each ownership category. We will discuss additional options below, but to expand on these three layers of protection, a client could:1. Add additional depositors to an account, for an additional $250,000 in coverage per depositor.
- For example, if three individuals hold a deposit account together at a bank, they have a combined total of $750,000 in FDIC insurance.
- For example, an individual with one savings account in one bank and a second savings account at a separate bank would have a combined total of $500,000 in FDIC coverage.
- Single accounts
- Certain retirement accounts
- Trust accounts
- Employee benefit plan accounts
- Access Additional Layers of Protection Using IntraFi Network Deposits
Another available tool is IntraFi Network Deposits. IntraFi comprises a network of more than 3,000 U.S. banking institutions. A customer’s deposits in a participating bank that exceed the FDIC coverage are spread across the IntraFi Network, maximizing FDIC coverage into the millions, while only technically using one bank.
A Note Regarding Protections for Investment Accounts
It’s important to note that investment accounts typically offer additional coverage. Many brokers offer coverage through a private carrier, in addition to Securities Investor Protection Corporation (SIPC) coverage, which can be as high as $100 million per account. This coverage does not protect against market fluctuations but does offer protection against the loss of cash and securities if the firm fails or assets go missing.
Awareness Is Key to Making the Most of FDIC Insurance
The FDIC coverage insures $250,000 in deposits per owner on an account. When account balances exceed that limit, we advise our clients to contact their banks to verify their total amount of FDIC coverage and look into options that can add additional layers of coverage, such as:
- Adding additional depositors to the impacted accounts
- Setting up accounts with additional banks
- Setting up ICS or CDARS accounts (These options are rolled into the IntraFi Network.)
- ICS (Insured Cash Sweep) accounts will sweep the funds across multiple banks, ensuring FDIC coverage, while reporting through the originating bank.
- CDARS (Certificate of Deposit Account Registry Service) accounts require investing in a variety of certificates of deposit (CDs) with maturities ranging from very short-term to long-term.
- Individual banks may also offer their own options to customers.
We want to make sure you are aware of the FDIC limits, considering the environment lately. Your banking institutions and advisers can offer the best solutions.
Do Credit Unions Have FDIC Insurance Coverage?
Funds held in insurable deposit accounts at credit unions (instead of banks) are insured, but not through the FDIC. Instead, credit unions are insured by the National Credit Union Association (NCUA). NCUA insurance differs slightly from FDIC insurance, but the limits and account categories are similar. If you bank with a credit union, traditional bank, or both types of institutions, then it’s best to check with representatives from each institution to learn more about your account protections.
How GrowthForce Can Help
While outsourced accounting firms do not typically provide wealth management services, we can provide some guidance regarding the basic principles of FDIC insurance, NCUA insurance, types of accounts protected, and insured account limits to help business owners understand the protections and limitations on those protections that their commercial and personal accounts have through the FDIC or the NCUA. Additionally, we can work with you to find additional ways to strengthen and protect your business during an economic downturn and in the face of a potentially looming economic recession.
Awareness about FDIC and NCUA coverage and their respective limits is key to ensuring all of your business and personal assets are protected. If you have any questions regarding the money in your accounts, we welcome you to contact a GrowthForce representative or encourage you to reach out to your bank or credit union, as they will be able to provide you with more specific information regarding the safety of your deposit accounts held at those unique institutions.