The Federal Deposit Insurance Corporation (FDIC) was established by the Banking Act of 1933 after more than 9,000 U.S. banks failed over a four-year period during the Great Depression. Federal Deposit Insurance, with an initial coverage level of $2,500 per depositor, went into effect on January 1, 1934. The fund has remained solvent since then.
What is FDIC insurance?
FDIC insurance ensures that depositors at member banks can withdraw their funds even if the bank fails. The current coverage level is up to $250,000 per depositor for each insured bank. The bank must be registered with the FDIC, but depositors do not need to pay for the insurance. Depositors with accounts at multiple banks are insured for $250,000 per bank.
The coverage levels have increased significantly since the establishment of the FDIC due to the increase in deposit amounts and higher average account balances. With current economic circumstances, like the failure of Silicon Valley Bank, there’s a push to increase those coverage levels further. U.S. banks currently hold $18 trillion in deposits, and the FDIC insures roughly half of those.
Is FDIC insurance only offered by traditional, brick-and-mortar banks?
FDIC insurance isn’t exclusive to brick-and-mortar banks. Many of the best online banking solutions, especially for business checking accounts, offer FDIC-insured accounts. Some have even found ways to expand their deposit insurance for customers, by partnering with sweep networks that diversify funds across multiple partner banks.
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How does FDIC insurance work?
If your business checking account is at a bank or institution that’s FDIC insured, your deposit insurance kicks in if the bank happens to fail. In Silicon Valley Bank’s case, the FDIC stepped in to take over the bank and protect depositors. It was the second-largest bank failure in U.S. history.
The other two bank failures were First Republic Bank and Signature Bank. The FDIC, which has $128 billion in its Deposit Insurance Fund, was able to assist in both cases. The FDIC is also authorized to borrow up to $100 billion from the U.S. Treasury at its discretion and as much as $500 billion with approval from the Treasury and the Federal Reserve.
What does FDIC coverage include?
The standard amount of deposit insurance for FDIC-insured accounts is $250,000 per depositor, per bank, for each account ownership category. According to the FDIC, this can include:
● Personal and business checking accounts
● Personal and business savings accounts
● Money market deposit accounts
● Certificates of deposit (CDs)
● Some prepaid cards
Investment products—like mutual funds, stocks, bonds, and annuities—are not covered by FDIC deposit insurance. FDIC coverage also does not include cryptocurrency assets.
Why is FDIC insurance important?
The FDIC was created in 1933 to protect deposits and establish trust in the banking system during the Great Depression. When bank failures do occur, the FDIC is there to protect depositors. In 2008, the FDIC increased its deposit coverage limit from $100,000 to $250,000.
As a small business owner, you’ll want to make sure the bank where you open your business checking account is FDIC insured. Those funds could keep your business running during difficult economic times and provide you the ability to make payroll. Your shareholders will also be more confident in your company’s liquidity if your deposits are FDIC insured.
What if my account balance is more than my FDIC insurance limit?
Since the standard FDIC insurance limit is $250,000, many businesses may need to maintain multiple business checking accounts to make sure all their deposits are covered. A better option would be to find a trusted business checking account with the amount of deposit insurance coverage you need. That way, you only have to manage one account—and if you have the opportunity to earn high-yield interest on that balance, it’s a win-win.
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