FDIC Insurance for Business Bank Accounts: LLCs, Sole Proprietors and Fintech Apps

If your business keeps payroll, tax reserves, or a cash cushion in the bank, you should know exactly how much of it is insured. The answer depends on your business structure and on whether your "bank" is actually a bank. This guide walks through the FDIC's own rules.

The $250,000 rule

According to the FDIC's Your Insured Deposits guide (last updated May 14, 2024), the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. Deposits in different ownership categories are insured separately, and separately chartered banks are insured separately.

LLCs, corporations, and partnerships

The FDIC puts corporations, partnerships, and unincorporated associations, explicitly including LLCs, in one ownership category:

• All deposits the entity holds at the same bank are added together and insured up to $250,000.
• That coverage is separate from the owners' personal deposits.
• The number of owners, members, or authorized signers doesn't increase coverage.
• The entity must be engaged in an "independent activity," meaning it operates primarily for some purpose other than increasing deposit insurance.

Sole proprietors: the trap

The FDIC states that accounts held in a sole proprietorship's name are not insured as a separate ownership category. They're treated as the owner's Single Accounts and added to any personal single accounts the owner holds at the same bank. The combined total is insured up to $250,000.

Worked examples

Illustrative arithmetic based on the FDIC rules above:

What FDIC insurance doesn't cover

The FDIC says deposit insurance covers deposits, not investments, even investments bought through an insured bank. It lists these as not covered:

• Stocks, bonds, and mutual funds
• Crypto assets
• Life insurance policies and annuities
• Municipal securities
• Safe deposit boxes and their contents
• U.S. Treasury bills, bonds, and notes. These are backed by the U.S. government, not FDIC insurance.

Watch for this if your business account offers a "treasury" or money-market sweep. Those funds are investments, not deposits.

Fintech business accounts and pass-through coverage

Many online business accounts are run by technology companies that aren't banks. Their deposits sit at one or more partner banks. The FDIC's consumer guide Is my money insured by the FDIC? (updated August 18, 2023) explains the risk:

• If the nonbank company places your money at an FDIC-insured bank, you may be eligible for "pass-through" coverage if that bank fails.
• Pass-through coverage depends on conditions. For example, the nonbank must keep records showing who owns the money and how much each person owns.
• FDIC insurance doesn't apply if the nonbank company itself fails or files for bankruptcy. Recovering funds through bankruptcy can take a significant amount of time.

In September 2024 the FDIC proposed a rule to strengthen recordkeeping for custodial deposit accounts held for fintech customers. Check FDIC.gov for its current status.

Some business-banking apps advertise coverage above $250,000 by sweeping deposits across several partner banks. If you rely on that, ask for the list of program banks, confirm each in the FDIC's BankFind tool, and remember that the nonbank-failure risk above still applies.

Checklist for business owners

1. Know your ownership category: entity account or sole proprietorship.
2. Add up your deposits per bank, not per account.
3. For fintech accounts, find the named partner bank in the disclosures and confirm it in FDIC BankFind.
4. Keep balances above $250,000 per bank, per category, only on purpose and with a plan.
5. Treat treasury or investment sweeps as investments, not insured deposits.
6. Have questions? The FDIC takes them at 1-877-ASK-FDIC and through ask.fdic.gov.