ABA Offers Banking Tips for Small Business Owners

WASHINGTON, March 1 /PRNewswire-USNewswire/ -- In light of President Obama's recently announced $30 billion small business lending program, the American Bankers Association is offering tips for small business owners. The following white paper, written by a former commercial banker, gives small business owners a rare glimpse into how bankers think and is intended to help them develop a mutually beneficial relationship with a bank, prepare to get loans, and evaluate offers. The following is the seventh and final paper in a series. The first six can be found at http://www.aba.com/Press+Room/PR_Small_Business_Issue.htm.

FDIC INSURANCE COVERAGE: SEVEN TIPS SMALL BUSINESS OWNERS NEED TO KNOW

By Robert C. Seiwert, Senior Vice President and Director

ABA Center for Commercial Lending & Business Banking

1) Understand what the FDIC insures…and what it does not.

The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs) up to the FDIC's insurance limit of $250,000 per depositor per bank (or $250,000 per deposit co- owner for joint accounts). The FDIC does not insure stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if the small business purchased these products from an insured bank.*

2) Utilize the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate the exact amount of insurance coverage that your small business has at each insured bank.

EDIE is located on the FDIC's Web site at www.fdic.gov/edie/.

3) Understand how the FDIC defines account ownership categories.

The key to maximizing FDIC insurance coverage is to understand how various account ownership categories are defined. The FDIC includes "single accounts" of sole proprietorships not as business accounts but as personal accounts when calculating insurance coverage. Single accounts are deposits that are owned by one person.*

If more than one person is a signatory to an account and they have equal authority to withdraw funds, the FDIC may include these funds in the "joint category" thus allowing the sole proprietorship to get additional FDIC insurance.*

4) Remember that the increases in deposit insurance are set to expire on December 31, 2013 and the unlimited deposit insurance coverage on qualifying transaction accounts will expire on June 30, 2010.

Therefore, depositors should continue to monitor not only the deposit insurance limits, but also what is and is not covered by the FDIC. It is also important to remember that the unlimited FDIC insurance coverage for non-interest bearing transaction accounts is only available at banks that participate in the FDIC's Temporary Liquidity Guarantee Program.

5) Ask your bank if it participates in a deposit placement program like CDARS.

CDARS stands for Certificate of Deposit Account Registry Service. If a small business has deposits at a bank that exceed the FDIC's insured coverage limit, CDARS can provide protection. It enables banks to offer up to $50 million in federal deposit insurance by spreading the deposits among several banks (thus spreading the risk) and allowing customers to keep all of their deposits in one bank. More than 3,000 banks offer this service. Also, consider splitting deposit accounts among additional FDIC-insured banks.

6) If you have set up a sweep account to earn interest on your small business checking account, make sure that you understand where your swept funds are going.

Some sweep accounts place funds into an FDIC insured account; others sweep funds into a Money Market Mutual Fund or use them to purchase (overnight) bank securities. It is important to understand not only what is done with the swept balances but also how your swept funds will be treated in the event that the bank fails.

7) What if your bank merges with another bank?

If an insured bank is merged with another insured bank, the FDIC provides separate insurance coverage for deposits at both the former institution and the merged entity for a limited time. This grace period allows small business owners time to restructure their accounts to maintain full FDIC insurance coverage on all of their deposits. The length of the grace period varies by the type of deposit account.*

*Source: FDIC

Robert C. Seiwert is a Senior Vice President of the American Bankers Association. Prior to joining the ABA, Mr. Seiwert was a banker for over 30 years, serving as President and CEO of a high-performing community bank and Director of Commercial Marketing for one of the nation's largest financial institutions.

SOURCE American Bankers Association