Q&A: What You Should Know about FDIC Insurance and Insured Cash Sweep Accounts

October 9, 2023 | Private-public partnerships making a difference in Iowa Kevin Tiernan, CTP, SVP, Treasury Management Senior Manager, Bankers Trust, ktiernan@bankerstrust.com

FDIC Insurance 

FDIC insurance has been a hot topic over the last several months. While you may see “Member FDIC” or hear about FDIC insurance any time you walk into a bank, view your account statement or see a banking ad, you may not have considered what it means for a financial institution to be FDIC insured. Here are the most frequently asked questions about FDIC insurance.

What is FDIC insurance? 

The Federal Deposit Insurance Corporation (FDIC) is an independent agency that strives to maintain stability and confidence in the U.S. financial system. Any financial institution that is a member of the FDIC automatically provides insurance on certain customers’ funds up to established limits in the unlikely event of a bank failure.

What does FDIC insurance cover? 

FDIC insurance covers checking accounts, savings accounts, certificates of deposit (CDs), money market deposit accounts, and negotiable order of withdrawal (NOW) accounts, as well as cashier’s checks, money orders and other official items issued by a bank.

What doesn’t FDIC insurance cover? 

FDIC insurance doesn’t cover investment accounts, mutual funds, crypto assets, life insurance, annuities, municipal securities, U.S. Treasury bills (these are backed by the U.S. government) or bonds, or safe deposit boxes and their contents.

How much will FDIC insurance cover? 

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. All deposits an accountholder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount. However, because there are several categories of account ownership, it is possible to maximize your FDIC coverage at one financial institution beyond $250,000.

Insured Cash Sweep Accounts 

Many consumers and businesses have been working more closely with their banking and financial partners to maximize coverage on their funds. One additional way to expand FDIC insurance coverage is with an Insured Cash Sweep account. Here are the most frequently asked questions about Insured Cash Sweep accounts.

What is an Insured Cash Sweep? 

An Insured Cash Sweep account gives you access to FDIC insurance on deposit balances exceeding $250,000 through partnerships between your bank and hundreds of others across the country. These accounts earn interest and are available for both personal banking and business accounts.

How do Insured Cash Sweeps work? 

All funds within an Insured Cash Sweep can be 100% FDIC insured up to $150 million. Through a partnership between the product provider, your bank and hundreds of other banks throughout the country, your funds are placed in an account at your financial institution.

Each night, your funds are “swept” in $250,000 increments into other FDIC-insured banks that participate in the same product network. Insured Cash Sweep gives you the ability to maintain full same-day access to all your funds, while working directly with your primary bank.

Why use an Insured Cash Sweep? 

An Insured Cash Sweep can give you peace of mind knowing your funds have full FDIC insurance. Along with being fully insured, the ability to work with only one bank, and the fully liquid, same-day convenience factor is also a significant benefit. Finally, Insured Cash Sweeps are interest-earning accounts, so you can still benefit from a competitive interest rate on your funds.

Are there other types of sweep accounts? 

Businesses can take advantage of other types of sweep accounts that are not FDIC insured. Two types of sweep accounts that are not FDIC insured include a Money Market Sweep and Line of Credit Sweep.

What is a Money Market Sweep? 

This is an automated service that helps businesses maximize interest earnings by automatically sweeping excess funds into a Commercial Money Market account.

What is a Line of Credit Sweep? 

This is a service in which collected funds are applied automatically to an outstanding balance on a line of credit and advances only when funds are required.

Talk with your banker to discuss the best options for your specific financial situation.