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Sunday, April 14, 2024

5 ways business owners can bank safely

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In recent months, there have been several major bank collapses, such as Silicon Valley Bank and First Republic Bank, causing turbulence in the banking industry. Businesses have been significantly impacted by these failures, as 1 in 15 business owners were affected according to a survey conducted by B2B Reviews, with many of their deposits being lost.

Only 29 percent of business owners have high confidence in the U.S. banking system, likely due to the reassurance from the Federal Deposit Insurance Corp. (FDIC) that all deposits at failed banks will be fully refunded.

Business owners can ensure the safety of their deposits and prevent interruptions in their cash flow by following these steps.

1. Look for FDIC insurance and understand its limits

The FDIC is a government agency that offers deposit insurance to protect customers’ deposits if a bank fails. To make sure your funds are safeguarded up to the right insurance limits, it’s best to use FDIC-insured banks. Keep in mind that some fintechs may not be directly FDIC-insured, but they store your deposits at a partnering bank that is insured by the federal government.

Business accounts are insured up to $250,000 per depositor, per insured bank, just like personal accounts. This means that if your business has deposits of $250,000 or less in a single bank, those funds are fully insured.

Just to clarify, the insurance for business accounts is separate from that of personal accounts. This means that if you have money in both a personal checking account and a business checking account, the insurance limit for each account will not be affected by the money in the other account.

2. Diversify where you bank

The failures of some banks have shown that it is not advisable to depend on just one bank. According to a study by B2B Reviews, 18 percent of business owners have already started using multiple banks because of these failures, while 22 percent are thinking about doing the same.

Spreading your business funds across multiple banks can help you have alternative options in case one of the banks collapses. This will ensure that your financial operations can continue while regulators work on recovering funds from the failed bank.

Additionally, using multiple FDIC-insured banks allows you to fully protect your funds and insure any excess deposits. For instance, if you have $200,000 in two different banks that are FDIC-insured, you can maximize your insurance coverage for both accounts.

Wealthfront, which is a fintech company, can diversify your funds for you and offers up to $5 million in FDIC insurance with its cash account. However, this insurance is not beyond the regular FDIC limits. Instead, the company spreads your funds across several partnered banks, each with their own insurance limits, to provide insurance coverage.

3. Research bank track records

It is important to assess the financial stability and reputation of a bank before entering into a partnership with them. If the bank has a record of disregarding regulatory compliance, it may indicate problems.

To determine if a bank is financially secure, check its financial statements, credit agency ratings, and online reviews. Look for signs of a dependable bank, such as steady profits, high capital reserves, and positive credit ratings.

It’s important to think about how easy it is to get in touch with customer support and how good their service is before choosing a bank. If customer service is hard to reach or unhelpful, it could be troublesome if you have any questions about your deposits. Having quick and helpful customer support can be really useful when you face any banking-related issues.

4. Separate business and personal finances

It’s important to keep your personal and business finances in separate bank accounts for various reasons. One of them is to set clear financial boundaries, which makes it simpler to keep track of your business’s revenue, expenditures, and taxes.

By separating your funds, you can prevent any personal financial problems or responsibilities from affecting the cash flow of your business and vice versa. This helps you get a clearer and more precise understanding of your business’s financial situation, which can guide you in making better-informed decisions.

It is important to maintain separate business and personal accounts to fully utilize FDIC insurance guidelines. Separate accounts are insured individually for both business and personal funds. Consolidating all funds into a single account may exceed the $250,000 insurance coverage limit.

5. Use digital security measures

To protect their finances from cybercrime and fraud, it is important for business owners to prioritize digital security as banking activities increasingly shift to online platforms.

Make sure your bank has strong security measures, such as multifactor authentication, encryption, and secure communication channels.

Mobile banking alerts are a helpful digital feature that can quickly alert you about unauthorized or suspicious activity on your account. You can choose to receive these alerts through your bank’s app, and they can notify you about large transactions or unusual debit card usage. By setting up these alerts, you can easily keep track of your account activity and take immediate action to safeguard your accounts if any unauthorized activity occurs.

Bottom line

Before choosing a business bank account, it is crucial to conduct thorough research. Check the bank’s track record, available security options, and FDIC insurance status. It’s a good idea to periodically reassess your banking relationships to ensure they meet your evolving business needs and provide a secure and current place to keep your deposits.

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