following the widespread bank runs of the great depression, congress created the federal deposit insurance corporation [fdic] to protect the public’s deposits and restore their confidence in the financial system. That was in 1934, and today not much has changed except for the fdic coverage limit growing by a multiple of 100, from $2,500 to $250,000 starting in 2022.
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Today, the fdic covers accounts with up to $250,000 in deposits per account owner/ownership category at each insured bank. This means that individual accounts and joint accounts at insured institutions can each receive $250,000 of insurance with a common account owner. As with individual accounts, business accounts can also get fdic insurance up to $250,000 per entity, per bank. fdic insurance extends to both principal and accrued interest as long as the account balance remains within limits.
It is important to note that there are certain caveats for businesses. For example, the fdic will provide business account insurance as long as the entity was not formed for the sole purpose of extending fdic insurance. In addition, business deposits do not interfere with fdic insurance coverage for any owner or employee who has individual deposits at the same bank.
companies will have more cash in 2022
According to the January 2022 Corporate Cash Indicators report from the Association of Financial Professionals [AFP], corporations increased their cash holdings in 2021. Specifically, 48% of companies had a greater amount of cash than end of 2021 than before. a year earlier and only 23% of companies had reduced their cash balances.
The most common reason organizations increased their cash balance was to improve business performance, although some noted that they increased short-term investments as a defensive measure. By 2022, 30% of organizations anticipate continued growth in their cash holdings, and many more companies plan to maintain their current cash position. As organizations accumulate more cash, ensuring fdic protection and competitive performance has never been more important.
companies can extend fdic insurance limits with fintech.
As a business grows, a mix of business checking, savings and CDs can quickly add up to the $250,000 limit. And, as detailed above, keeping more than $250,000 in a single institution creates a real risk of losing hard-earned deposits in the event of a bank failure. In the past, this problem required a labor-intensive solution, but now there are innovative ways to beat these insurance limits without the headaches.
For example, to overcome standard fdic insurance limitations at a single bank, a business might create enough accounts at other insured banks to ensure that all of its deposits are covered. This strategy uses the combined fdic insurance of several banks to spread the amount of fdic coverage. however, managing multiple banking relationships has been too tedious in the past for many organizations to implement this strategy effectively.
Also, consider a business with millions in cash that needs to be safely deposited and available when needed. That business would need to identify the banks with the best rates, develop and manage relationships at all of those banks, and perform reconciliations for all of those statements. So that company would need to monitor the market to ensure it gets the most competitive rates available, while continually shifting its funds to maintain optimal return on investment. this process might require an entire team of employees to manage effectively. however, with the rise of advanced financial technology [fintech], those days are over.
fintech alternatives to extend fdic insurance
Some services like Network DepositsSM (formerly CDARs and ICS) can extend fdic protection, but there are limitations on the amount of coverage, types of protection, and the availability of funds for those services. These limitations require companies to make trade-offs compared to other options. on the other hand, our company, the american deposit management co. [adm], you can extend fdic coverage to cover all trading deposits with a single deposit into an amma™ account, all while providing next-day liquidity. we call this solution marketplace banking™.
At adm, we achieve expanded fdic coverage for your business by using our proprietary fintech to automatically distribute funds through our nationwide network of financial institutions that compete for deposits. This allows a business to access expanded fdic protection while streamlining its cash management. it also allows the company to access the most competitive returns available for its deposits.
Beating the fdic personal insurance limits is also easier than ever.
As with businesses, people who have more than $250,000 in deposits with a single bank are at risk of losing some of their money in the event of a bank failure. Those people could open new accounts at different banks to expand their fdic coverage, but it can be even more difficult for individuals to manage this complex process than it is for businesses.
once again, fintech has provided a solution for people who can easily overcome the headaches of protecting a large sum of cash. our partner, max, can provide extended fdic protection for individuals in a similar way to adm’s method of securing extended fdic coverage for businesses. In addition to extended fdic insurance, max is also able to offer more competitive returns than most banks due to its large and diverse network of financial institutions that compete for deposits.
earn more, risk less® with adm.
At adm, we take the work out of managing business cash. In addition to the highest security and highest yield available for your business deposits, we offer a full suite of cash management solutions. From trade escrow to vendor payment processing, we’ve got your business covered.
So if your organization maintains a large cash reserve, you’re looking to make a major purchase, or you’re trying to reduce the work required to manage your business’s cash, don’t hesitate to contact us. We look forward to the opportunity to provide your business with the most competitive security and performance available.
If you’re looking for even more valuable information about your business’s banking, interest rates, and effective cash management, be sure to check out our information page and follow us on linkedin, twitter, and facebook.