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The FDIC will insure your business earnings in certain circumstances, but you need to do more to protect your business bank account from fraudsters and hackers.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency that was created by Congress following the Great Depression to help rebuild public trust in the banking system. The FDIC creates economic stability by insuring deposits in U.S. banks. Basically, the FDIC aims to prevent a “run on the banks” during which customers rush to withdraw their funds, causing banks to collapse.
The FDIC is not all-powerful, however, and there may be some additional steps you need to take to protect your business bank account. Here’s what you need to know about FDIC insurance and how to keep your business earnings safe.
What does the FDIC protect?
First, the FDIC covers deposits, not investments. For instance, the FDIC will protect money stored in checking accounts, savings accounts, money market deposit accounts and even cashier’s checks or money orders. The FDIC does not cover stock investments, bond investments, mutual funds, life insurance policies or the contents of a safe deposit box, for instance.
Second, make sure your bank is an institution insured by the FDIC to receive this protection. You can ask a representative at your local branch, look for the FDIC sign or use the FDIC’s BankFind Suite tool, which allows you to search using the address and name of your business bank account provider.
Next, the FDIC has a limit to how much they insure per depositor. “The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category,” read the FDIC guidelines.
What does this mean in practice? A depositor could be either a person or business. If your business is keeping well over $250,000 in an account, you may want to open multiple accounts at separate banking institutions. Say that your business has one business checking account at Bank A, and one business savings account at Bank B. The FDIC will insure each of those accounts separately up to $250,000. Note that funds deposited in separate branches of the same insured bank are not insured separately.
How to protect your business bank account
The FDIC is primarily concerned with protecting your deposit for instances of economic calamity — specifically, bank failure. Other potential threats to your business bank account, such as fraud or hacking, won’t be covered by FDIC insurance. These are two of the biggest threats that small business owners face. Gartner estimates that more than 10% of small businesses have fallen victim to fraud or hacking, which has led to more than $2 billion in losses in small business bank accounts.
It’s essential to note that banks are under no obligation to help you recover from a hacking event. “Business owners who have been hacked often feel most betrayed by the banks they thought were protecting their money,” reported the New York Times. “But banks have no legal obligation to reimburse businesses for attacks — federal regulations do not cover commercial accounts.”
Individual consumers are protected from fraudulent transfers under Regulation E of the Electronic Fund Transfer Act. This regulation puts the burden on banks to bear the financial losses of a fraudulent event. But, small businesses aren’t covered by this regulation — not even those owned by a single individual.
There are some steps you can take to be more proactive in protecting your business bank account. Consider these options:
- Partner with an established bank: larger banks, such as Chase or Bank of America, have more advanced monitoring capabilities and may be able to alert you of unusual account activity before it’s too late.
- Place limits on transaction sizes: cap the amount that can be accessed in an automated clearinghouse transaction, such as payroll, to prevent hackers from cleaning out your account at an ATM.
- Use multifactor authentication: require users who have access to your business bank accounts to confirm their identity not only through a username and password, but also through a phone call, text or email.
Ultimately, a strong approach to cybersecurity is perhaps the best way to prevent unauthorized access to your business bank account. Doug Johnson, a senior vice president at the American Bankers Association, had these suggestions: provide security training to your employees, change passwords often, mandate two-employee-approval to initiate fund transfers and only use a single computer for financial transactions. Monitor your accounts regularly to make sure you catch any suspicious activity and limit who can access your business bank account to only the most essential employees.
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