Recently, upheavals in the lending industry and bank failures have led many depositors to be concerned over the safety of their bank accounts. As most people are aware, a large number of banks and credit unions are covered by the Federal Deposit Insurance Corporation (FDIC), which insures accounts up to $100,000.00 (Credit unions are insured by the National Credit Union Administration [NCUA]). For many individuals, a $100,000.00 insured amount is more than sufficient coverage for their personal accounts, although all of your single accounts at the same insured bank are added together and the total is insured up to $100,000. For example, if you have a checking account and a CD at the same insured bank, and both accounts are in your name only, the two accounts are added together and the total is insured up to $100,000. For greater protection, you can always split amounts greater than $100,000.00 among multiple banks.

However, corporate accounts often hold amounts greater than $100,000.00. Under the FDIC Rules and Regulations, corporate accounts are also insured up to $100,000.00 combined, even when a corporation has separate accounts for divisions or units which are not separately incorporated.

One of the largest and most important account held by a corporation is the payroll account. Protection of a payroll account which exceeds $100,000.00 in deposits takes special planning which our office can assist you with.

Some banks may offer a service where they reciprocate accounts amongst other banks. When the account goes over the FDIC limit, they automatically open an account at another bank for the overflow, as many times as needed. You may wish to speak to your banking institution to see if they offer this service. Your payroll company may be able to draw from separate accounts and therefore allow you to open separate accounts at separate banks. You could then, for example, have multiple payroll accounts at separate banks, all insured separately, and all under the $100,000 limit.

Secondly, under the FDIC Rules & Regulations §330.11(a), if a corporation maintains deposit accounts in a representative or fiduciary capacity, such accounts shall not be treated as the deposit accounts of the corporation but shall be treated as fiduciary accounts and insured in accordance with separate provisions regarding accounts held by an agent or fiduciary and/or the provisions regarding joint ownership accounts.

FDIC Rules provide that the interests of each co-owner of a joint account are separately insured even if the account is in excess of $100,000. The amount of the co-owners interest is added to any other funds the co-owner may have on deposit at that banking institution, and the total is covered up to $100,000.

The FDIC will look at certain evidence to determine how the account should be treated. One of the factors is how the account is titled. For the strongest protection, we would recommend that you title your account “XYZ, Inc., as fiduciary for the XYZ, Inc. Employee’s Payroll Account.” Further, payroll accounts should be kept in a separate account from any other corporate funds, and preferably at a separate bank, if possible. All accounting records kept by the corporation should show that such account is only used for payroll purposes and list the names of the employees who are paid from that account, as if they were the owners.

One method not to use would be to hold separate accounts, all under the $100,000 limit, in your personal name or the names of family members. Co-mingling of assets is a hallmark of the doctrine of ‘piercing the corporate veil,’ and doing so could open you up to possible personal liability to answer for debts of the corporation.

Our research indicates that the above is the strongest protection your company can have with regards to FDIC insurance. We urge you to properly maintain your corporate records to ensure maximum protection. While the above advice may not be absolute, we believe it will provide your corporation with the strongest protection available to safeguarding your deposits.