How FDIC Insurance for Business Accounts Works

The Federal Deposit Insurance Corporation (FDIC) ensures the safety of cash deposited in insured banks, providing a protection of up to $250,000 per account in the case of a bank failure. You may find yourself asking: What does the FDIC do? Beyond insuring the money held in accounts, the FDIC works to establish a sense of public trust, redundancy, and stability in the U.S. financial system.

Although the FDIC protects each depositor for up to $250,000, there are different methods to increase your protection up to $5 million. A company offering a solution for business owners with higher account balances is Mercury. Mercury benefits from a sweep network — referred to as Mercury Vault — that spreads your cash deposits across multiple banks to enable adequate coverage and risk management. Mercury Vault partners with 20 banks that accept cash deposits of up to $250,000. This increases your coverage by 20 times the maximum FDIC coverage amount in the event of a financial event that impacts the bank’s liquidity.

How Does FDIC Insurance Work for Business Accounts

When a financial institution fails, account holders often wonder if their deposited funds are safe. The FDIC insures business accounts just like personal ones, with coverage up to $250,000 per depositor at a single institution. To maximize coverage, make sure to separate your business accounts from your personal accounts.

If a business and personal account are combined, the $250,000 limit applies to the full balance. This also applies to sole proprietorships using a personal Social Security number. For businesses with a separate tax ID, having distinct accounts simplifies the record-keeping and tax process. It’s advisable to consult with your local banker when opening a business account to ensure you are set up properly.

When Does FDIC Insurance Kick In?

FDIC insurance kicks in when a bank holding the funds fails or closes down. This usually happens when the bank itself becomes critically underfunded or can’t meet its financial obligations to depositors and other obligated parties.

Over the years, some failures have occurred when banks focused too heavily on one type of investment without spreading their risk across different asset classes and diversifying. This creates an imbalance in their portfolio, and if that particular investment sector starts to decline in value, it can trigger a downward spiral that leads to the bank’s failure. Most banks, however, diversify their portfolios nowadays to ensure they have multiple income streams and risk mitigation in case of rapid market shifts.

What Is Covered with FDIC Insurance for Business Accounts

What’s typically covered by FDIC Insurance are:

• Business checking accounts
• Business savings accounts
• Business money market deposit accounts
• Business deposits, such as certificates of deposit (CDs) and any deposits held under the business’ name
• Cashiers checks, money orders, and other financial items issued by the bank

What Is Not Covered with FDIC Insurance for Business Accounts

FDIC Insurance doesn’t cover everything. For example, your stock, bond, mutual fund, and annuities aren’t covered. Similarly, don’t expect your cryptocurrency assets, US treasuries, and safety deposit items to be covered by the FDIC.

What are the FDIC Insurance Coverage Limits?

Your FDIC Insurance coverage depends on the type and ownership structure of the account. For example, coverage limits would look like the following depending on what account you have:

• Single Accounts (Owned by One Person); FDIC coverage of $250,000 per owner
• Joint Accounts (Owned by Two or More People); FDIC coverage of $250,000 per co-owner
• Individual Retirement Accounts (IRAs); FDIC coverage of $250,000 per owner
• Corporation, Partnership & Unincorporated Association Accounts; FDIC coverage of $250,000 per corporation, partnership, or unincorporated association
• Employee Benefit Plan Accounts; FDIC coverage of $250,000 for the non-contingent interest of each employee benefit plan participant

How to Know if a Bank Is FDIC-insured

It’s pretty straightforward to check if the bank you want to use is FDIC-insured. Banks are mandated to publicly disclose whether they are FDIC-insured or not. Most FDIC-insured banks will display the FDIC logo prominently on their website. Look for language that mentions that the bank is “Member FDIC” on their main website for verification purposes.

You can also use the FDIC’s BankFind tool. BankFind makes it easy to search for FDIC-insured banks. All you have to do is enter the bank’s name and location information and the BankFind tool will confirm if the bank is FDIC-insured and also provide additional details about the bank.

Frequently Asked Questions

What types of accounts are FDIC insured?

The FDIC insures deposit accounts at FDIC-member banks. The types of accounts that are typically FDIC insured include:

• Checking accounts
• Savings accounts
• Money market deposit accounts (MMDA)
• Certificates of deposit (CDs)

Does FDIC insurance cover business accounts?

Yes, FDIC insurance does cover business accounts held at FDIC-insured member banks. Both your business and personal accounts will benefit from the same level of protection.

Is my business bank account protected?

If your business account is with an FDIC-insured member bank, then the standard insurance amount protected by the FDIC is $250,000 per depositor, per insured bank. This includes business bank account items such as:

• Business checking accounts
• Business savings accounts
• CDs held under the business name

How to increase FDIC coverage on a business account?

Here are several strategies you can follow to increase FDIC coverage beyond the $250,000 limit:

• Open accounts at different FDIC-insured banks. Since the insurance applies per bank, spreading your funds across multiple banks can increase your coverage.
• Utilize multiple ownership categories. If your business can structure funds under different legal entities or ownership categories, FDIC will treat each separately.
• Use a CDARS (Certificate of Deposit Account Registry Service). This service allows businesses to spread deposits across multiple banks, while still managing everything from one account, effectively increasing FDIC coverage and lowering your risk.

This article was reviewed by our banking expert Tricia Jones.