What to know about the FDIC and business bank accounts
Key takeaways
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Business bank accounts are covered by FDIC insurance up to the current limits.
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Investment products are not FDIC-protected, even when they’re purchased through the bank.
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It’s important to understand how account ownership types impact the limits of your coverage.
Have you ever wondered what would happen if your company’s bank went out of business and couldn’t pay its depositors? It’s been nearly 100 years since that sort of thing was common — but it’s always a possibility.
Fortunately, most business bank accounts today are covered by FDIC insurance that would reimburse the bank’s customers if that happened. But there are limits to that coverage, and some institutions and accounts aren’t covered at all. The more you know about the FDIC and business banking, the safer your company’s funds will be.
What is FDIC insurance?
When thousands of banks went out of business during the Great Depression, many account holders lost all their money. Families became destitute overnight, and no one wanted to trust banks with their money anymore. That’s why President Franklin Roosevelt passed the Banking Act of 1933 to help rebuild the economy. Among other safeguards, that Act created the Federal Deposit Insurance Corporation (FDIC).
Explaining this move, Roosevelt said, “After all, there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people.” The main goal of the FDIC was to help the public trust the banking system again, so they could save, borrow, invest and transact with their money.
Any money you deposit in an FDIC-insured bank is covered up to the limits of the insurance. Even if your financial institution goes bankrupt, your account balance is insured up to those limits.
How can you be sure your financial institution is FDIC-insured?
To verify that a bank is FDIC-insured:
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Check for the FDIC logo on its door, written materials or website.
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Look for language that mentions the bank is “Member FDIC” on its website.
Does FDIC insurance cover business accounts?
In general, FDIC covers both business and personal accounts at FDIC-insured institutions. However, insurance limits may vary depending on the type of account and the ownership structure.
Here’s a quick overview of the requirements for a business account to be eligible for FDIC insurance coverage:
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The business account is held at an FDIC-insured bank.
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The business is either a limited liability company (LLC), partnership or corporation. (Sole proprietorships and revocable trusts are not considered business accounts, but may still be covered).
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The business has not been organized solely to increase FDIC coverage.
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The funds are in a qualifying account: savings, checking, money market account, certificate of deposit, cashier’s check, money order or prepaid card.
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Deposits are covered only to the FDIC coverage limit, which is presently $250,000 per bank, per depositor and per account ownership type.
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The account is properly registered under the legal name and tax ID number of the business.
Types of business bank accounts covered by the FDIC
Not all bank products are included in FDIC coverage. Generally, deposit accounts are covered, while investment accounts are not.
Business deposit accounts that are covered include:
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Business checking accounts: Most businesses have a checking account to manage their day-to-day operations.
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Business money market accounts: These are interest-bearing accounts that offer checking features. They are a good option for businesses that maintain a high balance.
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Business savings accounts: Savings accounts let you earn interest on excess funds and set aside reserves and customer deposits.
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Certificates of deposit: If your business is setting aside funds for some future need, you might want to commit to a CD to earn higher interest.
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Bank instruments: Items like cashier’s checks, money orders and prepaid cards are covered by FDIC insurance. This protects you if your bank goes under and can’t honor the check or card.
Investment accounts that are not covered, even when they’re purchased through an FDIC-insured bank, include:
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Stocks
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Bonds
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Mutual funds
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Cryptocurrency assets
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Life insurance policies
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Annuities
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Municipal securities
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Safe deposit boxes or their contents
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U.S. Treasury bills, bonds or notes (these are backed by the full faith and credit of the U.S. government)
Not only are you not protected against losses in these investment accounts, but the funds you hold in these accounts are not protected against bankruptcy of the financial institution.
Insurance limits by account ownership type
In a nutshell, the current FDIC coverage limit is $250,000 per institution, per depositor and per account ownership type. That means you, as the depositor, are insured up to the limit for all the accounts of the same ownership type at any one bank.
The ownership types that qualify separately for coverage are:
| Account ownership type | Description | FDIC insurance limit |
| Single-owner accounts | An individual or sole proprietorship account in one person’s name. | $250,000 per owner |
| Joint account | Accounts in the names of two or more owners where both have the authority to make withdrawals (spouses, informal partners) | $250,000 per co-owner |
| Corporation, partnership, or association accounts | Owned by a legally organized company or organization, such as LLCs, C-corps, and S-corps | $250,000 per organization |
| Some retirement accounts | Individual retirement accounts (IRAs) and some self-directed plans, such as 401(k), profit-sharing, and Keogh plans | $250,000 per owner |
| Employee benefit plan accounts | Pension plans, defined benefit plans, and other employee benefit plans that are managed by an administrator on behalf of a group of participants. | $250,000 per plan participant. |
| Trust accounts | Revocable and irrevocable trusts with named beneficiaries | $250,000 per depositor for each unique beneficiary. |
Remember, each ownership type counts separately, not each account. Here are some examples of how this works:
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If you have three accounts under your business name at the same bank — savings, checking and a CD — you are covered to a total of $250,000 total in all three accounts.
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If you have three accounts at the same bank under three different ownerships — a personal account, a business account and a trust account — each account would be insured for up to $250,000.
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Note that if you’re a sole proprietor, your business account is considered a single-owner account. If you have any personal accounts in just your name at the same bank, they would all be counted together toward the limit for that bank.
If you need help figuring out how this applies to your bank accounts, the FDIC has an online tool that can help you analyze your situation.
Keep in mind that FDIC coverage limits may change from time to time. If you’re holding large amounts in your bank accounts, you should check coverage limits periodically to see if they’ve been updated.
How to protect excess business funds
If your business tends to accumulate a lot of cash, you’ll need a strategy to spread your funds across different institutions and ownership types.
The simplest approach is to review your bank balances on a regular schedule. If the total among all the accounts under one ownership type at one bank is approaching the limit, it’s time to move some funds to a different institution or open a new account at another bank.
If you manage enough cash that it’s a challenge to stay below the limit, you might want to learn about some more sophisticated ways to protect your excess funds.
The bottom line
Understanding how FDIC insurance covers your business accounts helps you keep your deposits safe.
If your bank is FDIC-insured, then each account owner is covered for up to $250,000 per institution, per ownership type. So, for example, if you have personal and business accounts in the same bank, each ownership type is covered up to $250,000. IRAs and trust accounts are also counted as separate ownership types.
This coverage is only valid for deposit accounts, though — investments and products like annuities aren’t insured, even if you buy them through an insured bank.
If you might be operating close to those limits, check that your bank is FDIC-insured and set up a regular review to make sure you’re not keeping too much of your money in one place.
Frequently asked questions
What happens to my business accounts if my bank fails?
If your bank is FDIC-insured, your business accounts are covered up to a total of $250,000.
If I have business and personal accounts at a bank, are they FDIC-insured separately?
Yes. FDIC insurance covers your account up to $250,000 per account holder, per bank and per ownership type. So you are covered separately up to that amount for personal accounts under your own name, joint accounts with someone else and accounts owned by your business, even if all the accounts are at the same bank.
Does FDIC insurance cover multiple business accounts at one bank?
Yes, as long as all the accounts at the same bank under the name of the same business total less than the FDIC limit, which is currently $250,000.
