Bank Deposit Insurance

Where is your money and to what degree is it protected? Often, account holders, such as businesses determine that their financial institution is insured through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) and do not think about it again. During the financial crisis, Congress expanded coverage, but that is changing. In light of those changes, it is a prudent talking point for your small business owners and individual donors to inquire if they aware of the changes to bank deposit insurance and recommend that they may wish to consider updating where their money is located and the extent to which it is protected.

The FDIC and NCUA both currently insure deposits at member institutions up to a maximum of $250,000 per depositor. It does not matter how many accounts the depositor has with the institution; all deposits are included in the $250,000 insurance maximum. Currently, FDIC insurance extends to non-interest-bearing transaction account deposits and such deposits are fully insured (without regard to amount), through December 31, 2012. This means that if you have an operating account with a financial institution that bears no interest, your deposits are protected for their full value for now. If you have other accounts, however, including savings accounts or any other interest-bearing deposits, FDIC and NCUA insurance covers only the first $250,000 you have deposited with each individual financial institution.

There are some complexities: for example, jointly held deposits are insured separately from individually held deposits, so a husband and wife could have, for example, one account in the name of each person and a joint account—and each of the three accounts would have coverage up to $250,000. This coverage, however, applies primarily to individuals. Because businesses often have only the business name on all deposits, the $250,000 deposit insurance limit usually remains applicable. Other complexities can involve grandfathering coverage on accounts transferred from failed banks.

Therefore, a topic of conversation might suggest some focus on whether the FDIC or NCUA insurance coverage they have is appropriate for their accounts. If their business has more than $250,000 at a financial institution, even if that money is in separate accounts, it may not have coverage at that institution above $250,000. The full FDIC or NCUA coverage for non-interest bearing operating accounts through the end of 2012 gives businesses some time to address this on those accounts, but if they decide to take action, it is better to act sooner rather than later. We suggest they consult with their financial advisors on their coverage and their options.