How to ensure that your deposits are properly insured.
It's widely known that the Federal Deposit Insurance Corp. insures deposits up to $100,000. But what happens if a company and its owner maintain a variety of accounts at the same bank? To what extent are the assets protected in the event of a problem? We asked David C. Cates, chairman of Ferguson & Co., a Washington, D.C., company that specializes in bank-risk analysis and data publishing. Here are his findings:
* Corporate accounts. From the standpoint of the FDIC, Cates says, a company's payroll account and other accounts used for business transactions and short-term investments are viewed as one account. This is true even if they have different account titles. The insurance limit, therefore, is $100,000. If your balance exceeds that level in the course of the day, Cates says, it's prudent to instruct your bank to "sweep" the account down to the $100,000 level -- in other words, invest excess funds -- at the close of business each day. Even if the account is swept, you still need to be attentive to where the money is being invested.
* Trust accounts. The assets of trust accounts aren't seen as deposits. So if a bank fails, Cates says, those assets are generally immune to government seizure. One notable exception: if the assets are held in certificates of deposit of the failed bank, for insurance purposes they are considered deposits. In the case of employee-benefits trusts, insurance would protect the CD investment up to $100,000 per beneficiary, Cates says.
* Personal accounts. Under the rules, your personal account is insured up to $100,000, as are the individual accounts of your spouse and your children. If your balances exceed the insured limit and you have concerns about the safety of the bank, it's a good idea to have accounts in more than one institution. -- Bruce G. Posner