Are Business Accounts FDIC Insured? Everything You Need To know

The primary reputation of the Federal Deposit Insurance Corporation (FDIC) lies in safeguarding the bank deposits of individual customers.

However, its protection also encompasses deposits made by entities such as corporations, partnerships, limited liability companies (LLCs), and unincorporated associations.

This includes both for-profit and not-for-profit organizations, subject to specific limits.

Here are the essential details you should be aware of.

Are Business Accounts FDIC Insured?
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How the FDIC Works

Established by Congress in 1933 amid the Great Depression, the FDIC safeguards the U.S. banking and financial systems.

It provides insurance for customer deposits (within certain limits) and intervenes when a member bank faces failure.

In March 2023, the FDIC took action following the high-profile collapses of Silicon Valley Bank and Signature Bank, assuring depositors of full account value, even exceeding normal coverage limits.

Temporary “bridge banks” were created to maintain smooth operations.

Business accounts, often totaling millions, were also eligible for FDIC coverage at the failed banks.

What Kinds of Business Accounts Does the FDIC Cover?

Similar to personal accounts, FDIC coverage extends to qualifying business accounts such as checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), cashier’s checks, money orders, and any other official items issued by a bank.

Requirements for FDIC Coverage

For FDIC coverage, a business account must meet two key criteria:

  1. The deposit-making entity must be organized under state law, excluding sole proprietorships, revocable trusts, and government entities.
  2. The primary purpose of the deposit-making entity should not be solely to increase FDIC insurance coverage.

Limits on FDIC Coverage

FDIC typically covers total deposits in eligible business accounts (corporation, partnership, LLC, or unincorporated organization) at a bank, up to $250,000.

Exceptions may apply during certain bank failures, as seen in the March 2023 cases of Silicon Valley Bank and Signature Bank, but future policy remains uncertain.

Note that business account limits do not factor in personal account deposits of owners or members.

To determine coverage, bank customers can utilize the FDIC’s Electronic Deposit Insurance Estimator (EDIE).

What the FDIC Does Not Cover

FDIC coverage doesn’t apply universally to all individual or business accounts or financial products, even if obtained from the same bank.

Among the things that the FDIC does not cover are: investments in stocks, bonds, and mutual funds; cryptocurrency assets; life insurance products; and Treasury bills, bonds, or notes.

(Treasury securities are, however, backed by the full faith and credit of the U.S. government, making them extremely safe.)

The FDIC also provides no coverage for the contents of safe deposit boxes or losses that result from theft.

Read more: How to start a pet insurance business?

Are All Banks Eligible for FDIC Protection?

FDIC coverage is applicable exclusively to banks that hold FDIC membership.

While this encompasses the majority of present-day banks, it’s advisable to verify before initiating an account.

The FDIC offers an online resource, the BankFind Suite, accessible to everyone, facilitating the identification of FDIC-insured banks based on their names and locations.

Does the FDIC Insure Credit Unions?

FDIC covers most business accounts, including checking, savings, money market, CDs, cashier's checks, and money orders
FDIC covers most business accounts, including checking, savings, money market, CDs, cashier’s checks, and money orders: Photo courtesy (Canva)

No, but a similar agency—the National Credit Union Administration (NCUA)—provides similar insurance coverage for credit unions and their members.

Are Money Market Funds FDIC Insured?

Money market deposit accounts provided by FDIC-insured banks fall under FDIC coverage, whereas money market funds, managed and sold by mutual fund companies and brokerage firms, lack FDIC protection.

Nonetheless, throughout history, money market funds have generally been considered secure due to their investments in very short-term securities.

Conclusion

The FDIC provides coverage for both individual and business accounts held at FDIC-member banks.

It’s important to note that not all account types are eligible for coverage, and there are typically limits on the extent of the coverage.

For businesses, the existing limits (currently set at $250,000) might prove insufficient for the intended deposit amount, necessitating the distribution of accounts across multiple banks.

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