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The banking landscape has seen its fair share of turbulence in recent months, with the collapses of major banks including Silicon Valley Bank, First Republic Bank and more. Many of the deposits at those failed banks were from businesses — in fact, 1 in 15 business owners were affected by the failures, according to a survey by B2B Reviews.
Although the Federal Deposit Insurance Corp. (FDIC) assured consumers that all deposits at the failed banks would be made whole, business owners have become wary of the banking system, with only 29 percent saying they’re highly confident in the U.S. banking system.
Here’s how business owners can ensure that their deposits are safe and prevent disruptions to their cash flows.
1. Look for FDIC insurance and understand its limits
The FDIC is an independent agency of the U.S. government that provides deposit insurance, which safeguards customers’ deposits in the event of a bank failure. Sticking with FDIC-insured banks ensures that your funds are protected up to the applicable insurance limits. Note that some fintechs might not be directly FDIC-insured but will store your deposits at a partnering bank where they’ll receive federal insurance.
Currently, the standard insurance coverage limit is $250,000 per depositor, per insured bank — and that applies to business accounts, too. That means if your business maintains deposits below or equal to $250,000 in a single bank, your funds are fully insured.
It’s important to note that business accounts are insured separately from personal accounts. In other words, the money in your personal checking account won’t count toward the limit of how much is insured in your business checking account.
2. Diversify where you bank
Recent bank failures have highlighted the importance of not relying on a single banking institution. The B2B Reviews study reported that 18 percent of business owners have diversified where they bank as a result of the bank failures, and another 22 percent are considering it.
On one hand, spreading your business funds across multiple banks can provide alternative options if one bank collapses, ensuring continuity in financial operations as regulators work to recover funds from the failed bank.
On the other hand, it also allows you to maximize your insurance coverage and insure excess deposits. So, for example, you could have $200,000 in one bank and $200,000 in another and have full coverage of those funds, so long as both banks are FDIC-insured.
Some institutions will diversify your funds for you. Wealthfront — a fintech company — offers up to $5 million in FDIC insurance with its cash account, for example. That insurance isn’t an exception to the standard FDIC limits, but rather it comes from Wealthfront spreading funds across multiple partnered banks, each with their own insurance limits.
3. Research bank track records
Before partnering with a bank, evaluate its financial health, stability and reputation. If the bank has a history of violating regulatory compliance, for example, that could be a red flag.
Review the bank’s financial statements, ratings from credit agencies and online reviews, all of which can indicate a bank’s financial health. Some indicators of a trustworthy bank to look out for are consistent profitability, strong capital reserves and good credit ratings.
You may also want to consider the accessibility and quality of customer support offered by the bank. If customer service is difficult to reach out to or is unresponsive, that might cause problems later on if you have questions about your deposits. Prompt and helpful customer support can be invaluable when you encounter any banking-related challenges.
4. Separate business and personal finances
Maintaining separate bank accounts for your business and personal finances is crucial for several reasons. First, it helps establish clear financial boundaries, making it easier to track and manage your business’s income, expenses and taxes.
Separating funds also ensures that personal financial setbacks or obligations do not directly impact your business’s cash flow and vice versa. This separation of finances provides a more accurate picture of your business’s financial health and can give you better-informed grounds for decision-making.
Lastly, it’s important to have separate business and personal accounts to take advantage of FDIC insurance guidelines. Business and personal accounts are insured separately. If you keep all of your funds in one account, that could push you over the $250,000 limit for coverage.
5. Use digital security measures
As more banking activities move online, business owners will want to prioritize digital security to safeguard their finances from cybercrime and fraud.
Ensure that your bank has robust security measures in place, such as multifactor authentication, encryption and secure communication channels.
One digital feature that can help you detect unauthorized or suspicious activity promptly is mobile banking alerts. These alerts, which can typically be opted into on a bank’s app, can notify you of anything from large transactions to when your debit card is used in an uncustomary location. Setting up bank alerts allows you to efficiently monitor your account activity and take swift action to protect your accounts in the event of unauthorized activity.
It’s important to do research before you settle on a business bank account. Look into a bank’s track record, security offerings and whether it’s FDIC-insured. You may want to periodically review your banking relationships to ensure they align with your business’s evolving needs and are providing you with a safe, up-to-date place to store your deposits.