We are about one year removed from the failure of three United States banks with combined assets of $548 billion and combined deposits of $368 billion. You’ll remember Silicon Valley Bank (SVB), the largest bank to fail since Washington Federal in 2008. According to the FDIC, 89% of the $175 billion in deposits held at SVB were uninsured. So, have we taken the lessons learned from this massive bank failure to heart, or is history doomed to repeat itself? Evidence would indicate the latter as trillions of dollars, primarily from corporations, remains uninsured in US banks.

With the FDIC insuring only $250,000 per account, why do businesses continue to hold significant assets unprotected in banks?  Frankly, it’s a matter of convenience. Most businesses have high monthly cashflow needs. Whether it’s to support a large payroll, material costs, or regular purchases, it’s important for most companies to have cash available quickly. The option of holding multiple accounts across different banking institutions (and thereby acquiring enough FDIC insurance coverage for all assets) is inconvenient and time-consuming.

But there are solutions for businesses that are worth considering. With just a little time and effort, you can protect your assets and earn interest at the same time. The high interest rates we have seen lately provide an opportunity for businesses with cash holdings to put that money to work earning interest in one of several types of accounts that allow the company to still withdraw quickly enough to support everyday business operations. Even if the cash is earmarked for a known expense, it can make sense to protect the cash and have it earning interest for you.

One solution is an Insured Cash Program (ICP) which holds relationships with multiple banking partners. The program administrator completes due diligence on the underlying banks and automatically sweeps money to different partner banks, enabling them to maintain FDIC insurance and competitive interest rates. By connecting your business accounts to an ICP, your cash can be protected up to $25 million, far exceeding the current $250K per account from the FDIC. Furthermore, these programs pay interest on cash, and we have seen interest rates from 4.25% to over 5% on the first $1 million.

From our own experience at Financial Plan, we operate as an S Corp and clear our bank accounts annually. We have made efforts to keep our money protected and working for us over the course of the year. With cash flow planning and monthly transfers, we have been able to reduce risk and generate significant income. Your business can do the same.

Planning ahead for your business cash flow needs and utilizing the simple strategies available can go a long way toward putting your money to work and keeping you protected from whatever happens next.

W. Devin Wolf, CFP®
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