Protect Your Company's Assets by Familiarizing Yourself with the $100,000 Limitation

We've all heard the saying "Don't bite off more than you can chew," but unfortunately, not everyone, including banks, always listens. For example, when a bank makes more loans than it can afford a failure of that institution is often the result. Considering the recent federal takeover of Pasadena, Calif.-based IndyMac, which was taken over by federal regulators on July 11 with total assets of $32.01 billion and total deposits of $19.06 billion as of March 31, 2008, many business owners are now wondering, "What if that happens to my bank?"

To best protect themselves in the event of a bank failure, business owners need to first understand what's protected through the Federal Deposit Insurance Corp. (FDIC). For starters, Corporations, partnerships and unincorporated associations, including for-profit and not-for-profit organizations, are all insured under the same ownership category.

"These accounts are insured only up to $100,000 at each separately chartered insurance institute," says Jim Deveney, chief of the deposit insurance section with FDIC. Deveney explains though, that if a company has multiple accounts-an operating account, a payroll account, etc.--at one location they are not separately insured. "These accounts are all added together and insured for up to $100,000," says Deveney. A business can, however, have multiple accounts spread out across different banks (one at Wachovia, one at Bank of America, etc.) and then each account is insured individually for up to $100,000.

An exception for businesses comes when the company places funds on behalf of employee benefit accounts.

"Those are insured up to $100,000 per the participant's interest in the plan," says Deveney.

But what if a company has more than $100,000 in its banking account and that institute fails? The FDIC only insures that account up to $100,000; are the uninsured funds gone for good? Not exactly, according to Deveney.

"In the unlikely event of a bank failure, if the account is in your name alone, you're entitled to a portion of the amount over insured based on what we receive from the sale of the assets," Deveney says.

So what can companies do to best protect their assets? Deveney says it's as simple as being aware of the $100,000 limit.

"You can also check your accounts with the Electronic Deposit Insurance Estimator (EDIE)," he adds.

It's also wise to check your balance in the account on a regular basis. Funds for checks written but not cleared still sit in the account. Your checking account balance may show just a few thousand dollars, but if you have a large check that hasn't cleared, your bank will still show that money as in your account.

CLICK HERE to access the EDIE.

CLICK HERE for a copy of FDIC's Your Insured Deposits brochure.

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