How To Keep Your Business Bank Accounts Safe

With the collapse of a major bank, Americans are, rightfully, concerned about the safety of their money. The U.S. government, through the Federal Deposit Insurance Corp., protects up to $100,000 per individual, but what about your business deposits?

The good news is that the FDIC also covers business accounts, not just personal accounts. Once again, the amount protected is up to $100,000. But take note: The $100,000 applies to all your accounts in any one bank — your business and personal accounts combined (if you’re a sole proprietor). That means that if your business has $75,000 in accounts and you personally have $75,000 in accounts — you’ve got $50,000 that’s not covered by FDIC insurance.

Small businesses (and big ones too, for that matter) can easily have more than $100,000 in all their business bank accounts combined. You might have a business checking account, a money market account earning a bit of interest on ready cash, and a CD — certificate of deposit — for your reserve funds. In some retail operations and restaurants, you could easily have tens of thousands of dollars going through your bank account every month. If you’re not paying attention, you could quickly exceed $100,000.

On top of that, many small-business owners keep their personal accounts at the same bank as their business accounts. It’s convenient — making it easier to transfer funds when you need — and sometimes a necessity. When I got a business loan, for example, the bank asked me to switch my personal banking to them also. If you have retirement funds in the same bank as your business accounts, these can easily exceed the $100,000 limit.

So how secure are your business funds and what should you do to protect them?

Here’s what you need to know:

FDIC insurance does cover business accounts — not just personal accounts. But it’s got to be a real business, not just a business set up for someone to get extra FDIC insurance for personal funds.

FDIC insurance covers only $100,000 per bank per “entity.” What does that mean? A person is an entity. So is a corporation. As is a legal partnership. Each of those can have separate FDIC insurance up to the $100,000 limit.

Sole proprietorships are not separate entities from the individual. If your business in not incorporated or an LLC, your business accounts are not covered separately from your personal accounts. That means your total protection is $100,000 for business and personal accounts combined. However, if your spouse is on your personal accounts, he or she is also insured up to $100,000.

Legal corporations, LLCs, and legal partnerships are treated as separate entities. If your business is a corporation (as mine is), you have $100,000 insurance on your business accounts at any one bank and another $100,000 on personal accounts at that same bank.

A legal partnership is one entity. No matter how many partners are in a legal partnership, the total FDIC insurance is $100,000 for that partnership’s accounts. If you have three partners in your legal partnership, the partnership’s bank accounts are only insured up to $100,000. Of course, if the individual partners have their own personal accounts in that same bank, they still have $100,000 FDIC insurance per individual.

If you have more than $100,000 in all your business accounts (or in a sole proprietorship and business accounts combined), given the insecurity of some banks, consider switching some of your funds to another FDIC-insured bank.

Do you want to see how others evaluate the safety and security of your bank or a bank you’re considering? You can read a detailed report about your bank and see overall ratings of your bank compared with others at Bankrate.com.

Rhonda Abrams is the author of “Six-Week Start-Up” and “What Business Should I Start?”