Does the FDIC Cover Business Accounts?

Yes, but usually only up to certain limits

The Federal Deposit Insurance Corporation (FDIC) is best known for insuring the bank deposits of individual consumers. But its coverage also extends to deposits by corporations, partnerships, limited liability companies (LLCs), and unincorporated associations—including for-profit and not-for-profit organizations—up to certain limits. Here is what you need to know.

Key Takeaways

  • The Federal Deposit Insurance Corporation (FDIC) insures bank deposits for most types of businesses, up to certain limits. 
  • To be eligible, companies must be organized under applicable state laws and not exist solely to increase FDIC deposit insurance coverage.
  • Accounts that are eligible for FDIC coverage include checking, savings, money market, and certificates of deposit (CDs), as well as cashier's checks, and money orders.
  • The FDIC does not cover investments in stocks, bonds, and mutual funds; safe deposit box contents; life insurance products; Treasury securities; or losses that result from theft.

How the FDIC Works

Created by Congress in 1933 in response to the many bank failures during the Great Depression, the FDIC is an independent federal agency that exists to protect the U.S. banking system, and the financial system in general, and ensure that consumers and businesses have confidence in its safety.

In addition to insuring customers' deposits, up to certain limits, the FDIC will step in when a member bank fails, taking it over and running it on a temporary basis until it can find another bank or banks to assume those duties.

This was seen in March 2023, when the FDIC stepped in after the highly publicized failures of Silicon Valley Bank in Santa Clara, California, and Signature Bank in New York City. In both cases the FDIC assured depositors that they would receive the full value of their accounts (in this rare instance even if those accounts exceeded the normal maximum FDIC coverage) and created temporary "bridge banks" to keep the banks' everyday operations running as smoothly as possible.

Many of the accounts at both of those failed banks belonged to businesses and sometimes totaled in the many millions of dollars. All of those were eligible for FDIC coverage, just like individual consumers' accounts.

What Kinds of Business Accounts Does the FDIC Cover?

As with consumer accounts, business accounts that are eligible for FDIC coverage include checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), cashier's checks, money orders, and "other official items issued by a bank."

Requirements for FDIC Coverage

There are two main requirements for a business account to qualify for FDIC coverage.

  1. The corporation, partnership, LLC, or unincorporated organization making the deposit has to be organized under applicable state law. Deposits made by sole proprietorships, revocable trusts, or government entities are not considered to be business accounts. (Sole proprietorships and revocable trusts are eligible for coverage under the rules governing individual consumer accounts. Government accounts fall into their own category called Public Unit accounts.)
  2. The main purpose of operation of the corporation, partnership, LLC, or unincorporated organization making the deposit has to be other than to increase deposit insurance coverage by the FDIC.

Limits on FDIC Coverage

Total deposits in eligible business accounts from a corporation, partnership, LLC, or unincorporated organization at a bank are normally covered by the FDIC for up to $250,000. (The March 2023 failures of Silicon Valley Bank and Signature Bank caused the FDIC to waive those limits, but it isn't known if that policy will apply in any future bank failures.)

For example, if a corporation has a checking account with $150,000 and a CD for another $150,000 at the same bank, the FDIC only insures $250,000, not the remaining $50,000. The corporation would need to transfer the remaining $50,000 to another bank for those funds to be eligible for FDIC coverage.

Deposits in personal accounts from owners or members of a corporation, partnership, LLC, or unincorporated organization at the same bank are not used to calculate the total deposits of a business. Instead they are subject to their own, separate limits.

Bank customers can use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate their total coverage at an FDIC-insured bank.

What the FDIC Does Not Cover

FDIC coverage does not apply to all types of accounts or financial products for individuals or businesses, even if they were purchased through that bank.

Among the things that the FDIC does not cover are: investments in stocks, bonds, and mutual funds; crypto 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.

Are All Banks Eligible for FDIC Protection?

FDIC protection is limited to banks that are members of the FDIC. That includes most banks today. Even so, it's always worth checking before you open an account. The FDIC has an online tool called BankFind Suite that anyone can use to find FDIC-insured banks by name and location.

Does the FDIC Insure Credit Unions?

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?

No, while money market deposit accounts offered by FDIC-insured banks are covered by the FDIC, money market funds, which are sold and run by mutual fund companies and brokerage firms, are not covered. Historically, however, money market funds have tended to be very safe because they invest in very short-term securities.

The Bottom Line

The Federal Deposit Insurance Corporation covers both individual and business accounts at FDIC-member banks. However, not all types of accounts are covered and there are normally limits on the amount of coverage. In the case of businesses, those limits (currently $250,000) may be inadequate for the amount of money they plan to deposit, so they may need to spread their accounts across multiple banks.

Article Sources
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