With Banks Facing Threats, Where Should a Small Business Keep Large Deposits?

Experts say businesses have a lot of options for storing their money safely—and they don’t necessarily involve stashing their cash with “too-big-to-fail” megabanks. 

The failures of three medium-sized banks this spring rattled small business owners, who often have deposits in excess of the $250,000 that’s protected by the Federal Deposit Insurance Corporation. Almost two-thirds of small businesses keep their money in small or regional banks, according to an April survey by the National Federation of Independent Businesses. And 70% of business owners said they were at least slightly concerned about the financial health of their banks in the wake of the collapse of Silicon Valley and Signature banks. 

Key Takeaways

  • Many small business owners are worried about the safety of their money after recent turmoil in the banking system, and ongoing threats to its financial stability.
  • It may be wise to spread balances between different institutions to stay under the $250,000 protected by the Federal Deposit Insurance Corporation, experts say.
  • Financial advisors and other financial services providers can help make spreading money between accounts easy for business owners.

The Risk Realities

While no banks have failed since early May, storm clouds may still be on the horizon. Small banks are especially exposed to the commercial real estate market, having heavily financed office projects that have plummeted in value amid the rise of remote work, the Government Accountability Office warned in a report last week. 

However, Mike Periu, a consultant specializing in small business finance, said businesses shouldn’t necessarily worry about how safe their money is in a credit union or a small bank, which tend to offer better terms and interest rates than larger national institutions. After all, this spring, federal regulators quickly stepped in to ensure that depositors at Silicon Valley and the other stricken banks were made whole, even for accounts that exceeded the FDIC limit, in an effort to reassure bank customers their money was safe and head off the possibility of panic spreading. The FDIC has proposed eliminating the limit entirely for businesses, although Congress has yet to authorize that change.

“There’s just no political will to deal with a broad-based, systemic financial crisis, so even institutions that are not too big to fail, they’re kind of being treated as though they are,” Periu said.

Indeed, while business owners say they are worried about their banks, few were so worried they took action: only 2% of business owners changed where their primary bank account was located in the previous month, the NFIB survey showed. 

Diversify Deposits

Business owners who want to ensure their deposits are safe can spread them across multiple banks so no account has more than $250,000. To make this less cumbersome, companies like IntraFi specialize in handling this process on behalf of businesses, and other financial services companies can do the same.  

“A financial advisor can spread it amongst various banks very quickly and easily throughout the country,” said Joshua Jenson, an Oklahoma-based accountant who specializes in small businesses. 

Jenson also advises businesses to keep at least a few thousand dollars in cash—actual, physical cash—on hand in case there’s a disruption to electronic banking services.

Beyond managing risk, recent banking system woes offer businesses an opportunity to reassess how they are handling their money, Periu said. 

“It’s an opportunity, if you’re thinking about it, to really take a look at your overall cash management practices,” Periu said. “What are your accounts receivable policies? What are your accounts payable policies? Are you paying excessive amounts of fees? Are you getting the best interest rate right now?”