Your money is top of mind, not just for your business but also for your bank. In addition to taking precautions to bolster your account security, the best business checking accounts work to protect your deposits with FDIC insurance—some even offer more coverage than the typical limit, using sweep networks and partner banks.
In this article, we’ll explore how banks help keep your money safe from bank failures and fraudsters, as well as how you can do your part to protect your assets.
How does FDIC insurance work for business checking accounts?
The Federal Deposit Insurance Corporation, or FDIC, is an independent agency of the federal government that was created in 1933 after many banks failed during The Great Depression. Its purpose is to protect banking consumers’ deposits in the instance of a bank failure.
Earlier this year, we saw the FDIC in action when both Silicon Valley Bank and Signature Bank failed. The FDIC stepped in and assured depositors that they’d receive the money from their accounts. Because the banks were FDIC-insured, small business owners with accounts at those institutions were protected. The FDIC also created bridge banks as a temporary measure to keep the accounts operational.
FDIC insurance covers each depositor for up to $250,000 in balances at each FDIC-insured institution. The types of bank products covered include checking accounts, savings accounts, certificates of deposit (CDs), and money market deposit accounts. Other official bank items, such as a money order or cashier’s check, are also covered as long as the items are held by an FDIC member bank.
How do I get additional FDIC insurance?
Some business checking accounts may offer extended FDIC insurance coverage by spreading your deposits across multiple banks that are members of the FDIC. This is called a sweep network.
A sweep network allows you to grant your banking institution permission to expand your FDIC coverage across multiple banks within the network. In addition to more of your deposits being insured by the FDIC, you still only need to maintain a relationship with your primary banker.
Under the standard limit, the FDIC would only offer protection up to $250,000, and the rest of your money would be left vulnerable to a loss if the bank were to fail. However, by leveraging the power of a sweep network, your bank can spread balances that exceed the limit across multiple banks, so you could have full protection on all of your deposits up to, say, $2 million or more, depending on the institution.
How does SIPC insurance work for brokerage accounts?
Securities Investor Protection Corporation (SIPC) insurance provides coverage for brokerage account investments if the brokerage fails or your assets go missing. The brokerage has to be a SIPC member for your assets to be covered.
SIPC insurance will cover up to $250,000 for cash you have in your account to purchase securities or up to $500,000 in protection for securities.
SIPC insurance will not cover your investments if the brokerage firm isn’t an SIPC member. It also won’t protect your securities in the event of a market loss or bad investment, nor will it cover futures contracts or commodities.
What’s the difference between FDIC insurance and SIPC insurance?
Both SIPC and FDIC insurance protect your assets in the event of a failure at member institutions.
The biggest difference is that FDIC coverage protects your bank deposits and assets, while SIPC coverage protects your securities with a brokerage firm. Neither type of coverage is better than the other because each offers protection for different types of accounts and with separate institutions.
However, some banks have similar offerings to a brokerage, like a money market or treasury account. In that case, you could have FDIC coverage on your business checking account while your brokerage account is covered by SIPC insurance.
There are also different limit thresholds. For instance, FDIC insurance covers deposits up to $250,000, while SIPC insurance covers cash for securities for up to $250,000 and up to $500,000 for securities.
How do banks keep my account secure?
Many banks have robust security features in place to ensure that your accounts are safe. However, the best business bank accounts have advanced security systems to maximize the protection of your assets and deposits.
These security measures can include:
- Enhanced online security, such as firewalls and data encryption
- Two-factor or multifactor authentication
- Strong password requirements
- Biometric login on mobile apps
- Suspicious activity and fraud alerts
- Instant lock on credit and debit cards if they’re lost, stolen, or compromised
Tips for preventing bank fraud
While you definitely want to do business with a bank that takes account security seriously, there are some things you should do to keep your bank accounts and money safe.
- Use password security best practices. It can be overwhelming having a separate, strong, and unique password for each of your accounts. Unfortunately, it’s absolutely vital because fraud is so prevalent these days. Cybercriminals can breach and take over your account, steal your identity, transfer money from your account to theirs, and make unauthorized purchases. To prevent this from happening to you, change your passwords often and protect them by not sharing them with anyone. It’s also a good idea to keep your computer operating system up to date to minimize vulnerabilities.
- Stay on the lookout for phishing scams. Remain vigilant at all times and avoid sharing sensitive information with potential scammers, especially via unsolicited emails, texts, and phone calls.
- Set up security alerts for your account. That way, if someone tries to get into your accounts, you’ll know about it and can contact your financial institution to report suspicious or unauthorized activity immediately.
- Protect your debit card. One of the most effective ways to prevent debit card fraud is to never use your card to make purchases from a vendor, store, or website you’re unfamiliar with.
- Memorize your PIN. Never write your PIN down or store it in a place someone can easily find it, physically or virtually.
- Monitor your account regularly. Review all of your card transactions to look for items you don’t recognize, and report any unfamiliar activity immediately.
You can play a role in keeping your money safe and make it harder for fraudsters to take over your account by following all of these best practices. Also, be sure to partner with a bank that prioritizes your account security.
Secure business checking with the opportunity to earn high-yield interest.
