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NEWS RELEASE
Aug. 27, 2008
ABA Media Contact: Carol Kaplan
(202) 663-5471
E-mail: ckaplan@aba.com
FDIC INSURANCE COVERAGE: SIX TIPS SMALL BUSINESS OWNERS NEED TO KNOW
WASHINGTON – Stress on the U.S. economy is affecting the nation's 26 million small businesses, creating the toughest operating environment in decades. In order to survive and compete, small business owners need to know which assets deposited into banks are – and aren't – protected by the Federal Deposit Insurance Corporation (FDIC).
Robert C. Seiwert, SVP of the American Bankers Association's Center for Commercial Lending and Business Banking, advises small business owners to make sure that their bank is FDIC insured. The terms "bank" and "financial institution" are often used interchangeably and not all carry FDIC protection for depositors.
"No customer has ever lost a penny in insured deposits when a bank has failed," Seiwert said. "More than 8,500 banks across the country are ready and willing to serve small businesses. Finding an FDIC insured bank should not be a problem."
Seiwert and ABA's Center for Commercial Lending offer the following tips for small business owners:
1) Understand what the FDIC insures … and what it doesn't.
The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs) up to the FDIC's insurance limit.* (See EDIE calculator below.) The FDIC does not insure stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if the small business purchased these products from an insured bank.*
2) Utilize the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate the exact amount of insurance coverage that your small business has at each insured bank. EDIE is located on the FDIC's Web site at http://www.fdic.gov/edie/.
3) Understand how the FDIC defines account ownership categories.
The key to maximizing FDIC insurance coverage is to understand how various account ownership categories are defined. The FDIC includes "single accounts" of sole proprietorships, not as business accounts, but as personal accounts when calculating insurance coverage. "Single accounts" are deposits that are owned by one person.*
If more than one person is signatory to an account and they have equal authority to withdraw funds, the FDIC may include these funds in the "joint category" thus allowing the sole proprietorship additional FDIC insurance.*
4) Ask your bank if it participates in a deposit placement program like CDARS.
CDARS stands for Certificate of Deposit Account Registry Service. If a small business has deposits at a financial institution that exceed FDIC's insured coverage limit, CDARS can provide protection. It enables banks to offer up to $50 million in federal deposit insurance by spreading the deposits among several banks (thus spreading the risk) and allowing customers to keep all their deposits in one bank. More than 2,000 banks offer this service. Also, consider splitting deposit accounts among additional FDIC-insured banks.
5) Make sure "sweep accounts" are "swept" into FDIC insured accounts.
If you have set up "sweep accounts" to earn interest on your small business deposit accounts, make sure that the funds are swept into FDIC insured accounts. If that sweep option is not available at your bank, make sure the bank collateralizes the swept deposits with U.S. government securities.
6) What if your bank merges with another bank?
If an insured bank is merged with another insured bank, the FDIC provides separate insurance coverage for deposits at both the former institution and the merged entity for a limited time. This "grace period" allows small business owners time to restructure their accounts to maintain full FDIC insurance coverage on all their deposits. The length of the grace period varies by the type of deposit account.*
*Source: FDIC
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The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation's banking industry and strengthen America's economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry's $13.3 trillion in assets and employ over 2 million men and women.
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