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FDIC Insurance and your Deposits

The Federal Deposit Insurance Corporation (FDIC) “covers deposit accounts (including checking, savings, money market, and certificates of deposit) of up to $250,000 per depositor, per insured bank, for each account ownership category.”

Since the Great Depression, the FDIC has covered bank deposits with an insurance systems that is backed by the U.S. government. It is considered a failsafe, and up until the financial crisis of 2007 – 2008, the program had so earned the trust of the American psyche that some Americans either believed that the FDIC covered all deposits, or they simply didn’t understand the limits in coverage. Many businesses and individuals found out the hard way that their deposits at any one institution were only covered up to $100,000 (the limit at the time) and found themselves unable to recoup the loss during a string of bank runs and failures during the financial crisis.

In response, the Emergency Economic Stabilization Act of 2008 increased that limit to $250,000.

How to cover your deposits

If you are thinking about your personal deposit accounts, read the FDIC’s Deposit Insurance Summary carefully and work with your investment broker and/or banker to come up with ways to make sure your deposits are covered.

Businesses that need to operate deposit accounts with large amounts of money may need to think of some updated strategies. Since the bank crisis of 2008, some cash management firms have sprung up that will help manage large deposits by spreading them out over a large network of banks.

However, those firms take a fee for their efforts, and work in a vast web of deposits and accounts that is difficult to manage.

Businesses that need to have a lot of cash on hand may want to consider a two-pronged approach to cash management that involves smart banking and smart insurance, just in case they ever face a bank failure.

A banking strategy that works for your business

Be smart about where you bank. Work with your banker and investment advisors to develop an approach that keeps your deposits safe and insured. Bank with a mix of local institutions and national banks – making sure they participate in the FDIC program. Know where your cash flow is at all times. Work with the professionals to understand how much risk you face on a day-to-day or month-to-month basis, and consider purchasing extra insurance to cover losses in excess of the FDIC’s guarantee.

This is an area where captive insurance can be very helpful. A captive can cover losses you face from deposits if they are in excess of FDIC coverage during a crisis. And, if the crisis never comes, you’re captive investment is working for you – instead of going out to cash managers and bank fees at multiple institutions.

Talk with your financial representatives, or call us, to see if a captive is right for your company.