Editorial · January 26, 2013
FDIC insurance business accounts: what changed
FDIC insurance business accounts now follow one standard limit: $250,000 per depositor, per insured bank, for each ownership category. In 2011 and 2012, one kind of account had no limit at all. That extra protection expired on December 31, 2012, as scheduled.
If your deposits at one bank total $250,000 or less, you are covered in full. If they total more, the change may matter to you.
What ended on December 31, 2012
Section 343 of the Dodd-Frank Act gave unlimited FDIC coverage to noninterest-bearing transaction accounts from December 31, 2010 through December 31, 2012. Consumers, businesses and government bodies all qualified, at every FDIC-insured bank.
The FDIC defined these accounts in three parts. They earn and pay no interest, they allow unlimited transfers and withdrawals, and the bank cannot require advance notice before money leaves. A traditional checking account that pays no interest fits. Money market deposit accounts and NOW accounts did not qualify, even when they paid no interest.
Checking rules changed in another way in 2011. Section 627 of the same law ended the ban on interest for demand deposit accounts, which is the banking term for ordinary checking. The change started on July 21, 2011. A checking account that pays interest was never part of the unlimited coverage.
The unlimited rule sat on top of the usual limit. A company could keep any amount insured in noninterest checking. It could also have up to $250,000 insured in its other accounts at the same bank. On January 1, 2013, that separate protection ended. Checking balances now count with the owner's other deposits at that bank in the same ownership category, and the total is insured up to $250,000.
In November 2012, the FDIC encouraged banks to warn these account holders in writing. If yours did not, ask your banker where you stand.
The $250,000 limit is permanent
The standard limit did not change on January 1. Congress first raised it from $100,000 to $250,000 on October 3, 2008, as a temporary step. The Dodd-Frank Act, which became law on July 21, 2010, made the higher limit permanent.
In plain words, per depositor means per owner of the money. Per insured bank means each bank with its own charter counts on its own, while branches of one bank do not. Per ownership category means the legal way the money is held, such as single accounts, joint accounts, or accounts of a corporation or partnership. The insured amount counts the balance plus any interest earned through the day a bank closes.
How the limit works for a business
A corporation, partnership or unincorporated association has its own ownership category. All of its deposits at one bank are added together and insured up to $250,000. The FDIC insures that money separately from the personal deposits of the owners, partners and members.
Account labels do not create extra coverage. An operating account and a reserve account at the same bank are added together. So are the accounts of divisions that are not separately incorporated. The number of partners, stockholders or signers does not change the limit.
Take a company with $400,000 in noninterest checking and $100,000 in a certificate of deposit at one bank. At the end of 2012, all $500,000 was insured. Now the FDIC adds the two together and insures $250,000, so $250,000 is uninsured.
Sole proprietors are handled differently. The FDIC treats a sole proprietorship's account as the owner's own single account. It adds the balance to any other accounts the owner holds alone at the same bank. In one FDIC example, an owner has $235,000 in personal savings, money market and CD accounts, plus $25,000 in business checking, at one bank. The total is $260,000, so the FDIC insures $250,000 and leaves $10,000 uninsured.
What FDIC insurance does not cover
FDIC insurance covers deposits: checking and savings accounts, money market deposit accounts, certificates of deposit and official items like cashier's checks. It does not cover stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even when you buy them at an insured bank. Safe deposit boxes and their contents are not covered either. U.S. Treasury securities are not FDIC insured, but the government backs them directly.
No promise from a banker changes the limit. The FDIC says no statement by any person or organization can raise or change what it can pay.
FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC began operations in 1934, no depositor has lost a penny of insured deposits. Money above the limit is treated differently. When a bank fails, the FDIC acts as receiver, sells the bank's assets and settles its debts, including claims for deposits above the insured limit.
Five checks for business owners
- Add up your balances. List every account your business holds at each bank, including savings and certificates of deposit. Sole proprietors should add personal accounts held in their name alone at the same bank.
- Run the numbers. The FDIC's online estimator, called EDIE, covers business accounts and lets you print a report for your records. The FDIC notes that with more than $250,000 on deposit, you may have more or less coverage than you think.
- Confirm your bank is insured. Use the FDIC's BankFind tool, call 1-877-275-3342, or look for the FDIC sign where the bank takes deposits.
- Compare the total to the limit. If you are over it, talk with your banker and accountant about your options. Deposits at a second insured bank are insured separately, but a second branch of the same bank does not count.
- Read your account agreement. The FDIC asked banks to review these documents and fix any wording that describes the old rules. If yours still does, ask your bank to explain.